SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTON 13 OR 15(d)
OF THE SECURITIES AND 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 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 May 19, 1999
Common Stock, $.01 Par Value 4,129,737 shares
Page 1
METROTRANS CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended April 4, 1999
Table of Contents
Item Page
Number Number
PART I. FINANCIAL INFORMATION
1 Financial Statements:
Consolidated Balance Sheets as of April 4, 1999
and December 31, 1998 3
Consolidated Statements of Income for the three
months ended April 4, 1999 and April 5, 1998 4
Consolidated Statements of Cash Flows for the
three months ended April 4, 1999 and April 5, 1998 5
Notes to Consolidated Financial Statements 6
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
3 Quantitative and Qualitative Disclosures about
Market Risk 13
PART II. OTHER INFORMATION
1 Legal Proceedings 13
5 Other Information 14
6 Exhibits and Reports on Form 8-K 15
Signature 16
Index of Exhibits 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
METROTRANS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, Except Share Data)
April 4 December 31
1999 1998
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 0 $ 0
Accounts Receivable, net of allowance for
doubtful accounts of $340 and $134 in 1999
and 1998, respectively 3,637 6,047
Current portion of net investment in
sales-type leases 210 256
Inventories 34,419 39,628
Refundable income taxes 1,892 2,229
Prepaid expenses and other 1,532 1,192
________ ________
Total current assets 41,690 49,352
PROPERTY, PLANT AND EQUIPMENT, net 8,605 8,902
NET INVESTMENT IN SALES-TYPE LEASES 136 130
INTANGIBLES 493 502
DEPOSITS AND OTHER 413 415
________ ________
$ 51,337 $ 59,301
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 19,384 $ 24,587
Current portion of long-term debt 2,356 2,236
Customer deposits 1,391 1,211
________ ________
Total current liabilities 23,131 28,034
________ ________
LONG-TERM DEBT, net of current portion 19,369 16,076
________ ________
OTHER NONCURRENT LIABILITIES 150 300
________ ________
STOCHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000
shares authorized 0 0
Common stock, $.01 par value; 20,000,000
shares authorized, 4,129,737 and 4,098,244
shares issued and outstanding in
1999 and 1998, respectively 41 41
Additional paid-in capital 10,824 10,673
Deferred compensation (79) (105)
Retained (deficit) earnings (2,099) 4,282
________ ________
8,687 14,891
________ ________
$ 51,337 $ 59,301
======== ========
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
__________________
April 4 April 5
1999 1998
_______ _______
NET REVENUE $ 17,467 $ 16,018
COST OF SALES 19,057 13,796
_________ _________
Gross (Loss) Profit (1,590) 2,222
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,350 2,908
_________ _________
Operating Loss (5,940) (686)
INTEREST EXPENSE, net 441 279
_________ _________
LOSS BEFORE INCOME TAXES (6,381) (965)
INCOME TAX BENEFIT 0 (379)
_________ _________
NET LOSS $ (6,381) $ (586)
========= =========
NET LOSS PER SHARE:
Basic $ (1.55) $ (0.14)
========= =========
Diluted $ (1.55) $ (0.14)
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 4,106 4,084
========= =========
Diluted 4,106 4,084
========= =========
The accompanying notes are an integral part of these statements.
4
METROTRANS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
__________________
April 4 April 5
1999 1998
_______ _______
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,381) $ (586)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 256 187
Writedown of long-lived assets 100 0
Compensation under restricted stock award 26 26
Changes in assets and liabilities:
Accounts receivable 2,410 (2,130)
Inventories 5,209 (2,834)
Other assets (1) 138
Accounts payable and accrued expenses (5,203) 849
Customer deposits 180 385
_________ _________
Total adjustments 2,977 (3,379)
_________ _________
Net cash used in operating activities (3,404) (3,965)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (89) (515)
Net decrease in investment in sales-type leases 40 248
_________ _________
Net cash by used in investing activities (49) (267)
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 3,473 4,499
Net decrease in collateralized borrowings (20) (180)
Net repayments of long-term debt 0 (87)
_________ _________
Net cash provided by
financing activities 3,453 4,232
_________ _________
(DECREASE) INCREASE IN CASH 0 0
CASH AT BEGINNING OF PERIOD 0 50
_________ _________
CASH AT END OF PERIOD $ 0 $ 50
========= =========
CASH PAID FOR INTEREST $ 166 $ 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
April 4, 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
three-month period ended April 4, 1999 are not necessarily indicative of
results that may be expected for the full fiscal year.
2. Inventories
Inventories consist of (in thousands):
April 4, 1999 December 31, 1998
Chassis awaiting conversion $ 1,181 $ 3,958
Raw materials 6,383 6,061
Work in process 4,628 2,937
Finished goods 16,285 19,888
Used vehicles 5,942 6,784
_______ _______
$34,419 $39,628
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 April 4, 1999 and December 31, 1998 was $17 million and
$15 million, respectively. During the quarter ended April 4, 1999, the
Company purchased buses totaling approximately $19,000 related to 1998 lease
defaults and litigation settlements.
6
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. Please see Item 1 of Part
I of this Quarterly Report on Form 10-Q for additional information.
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 must adopt the provisions of SFAS No. 133 by
January 1, 2000. The Company has not yet determined the impact of the
adoption of SFAS 133.
5. Long-Term Debt
Effective April 12, 1999, the Company has entered into an amended secured
revolving credit facility (the "Amended Facility"). Under the Amended
Facility,
the Company has obtained a waiver of all defaults which existed
under the unsecured credit facility. In addition, the Amended Facility
provides a commitment of up to $23 million, an increase of $3 million.
Interest under the Amended Facility is at prime (7.75% at April 12, 1999).
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.
Finally, 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.
7
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-
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 Metrotrans Corporation to attract and
retain qualified management, manufacturing
and sales personnel; the ability to control manufacturing costs; the effects
of competition; changes in accounting policies and practices; the ability of
Metrotrans Corporation, its vendors, suppliers and customers to be Year 2000
compliant; the ability to complete the implementation of a manufacturing cost
accounting system; and, the ability to obtain chassis on a timely basis on
terms acceptable to the company. 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. Since the
introduction of the Classic(r) in 1986, the Company has experienced
significant growth in unit sales and revenues. 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(r) in 1990, the Eurotrans
XLT(r) and the Classic II(r) in 1992, the Classic Commuter(r) in 1993, the
Legacy LJ by Metrotrans(tm) in 1996 the Anthem(tm) in 1997 and the Classic
XLT (tm) in 1998. Metrotrans began exclusive marketing of the Irizar Century
in 1997 with the first deliveries occurring in the second quarter of 1998.
8
Results of Operations
The Company's first quarter of operations were adversely affected
as a result of a number of factors, including a change in management
personnel involving Mayflower Corporation plc ("Mayflower") representatives
who occupied key management
positions in the Company and the medical leave of 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 completed a new credit arrangement with its
primary lender on April 12, 1999. In addition, due to the illness of the
Chairman of the Board, 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 has embarked on a severe cost reduction effort for all
expenses, has instituted tighter controls over manufacturing, and has reduced
inventories by approximately $5 million since year end and receivables by
approximately $3 million. The Company's backlog for manufactured buses has
increased since April 5, 1999.
Irizar sales in the first quarter were below plan, and sales for at
least the second and third quarter also will be significantly negatively
impacted. Management is currently meeting with Irizar to examine production
and sales issues.
Ford Motor Company (the Company's primary supplier for chassis)
notified the Company on May 21, 1999 that they are reviewing their payment
requirement relationship with the Company. The effect of any proposed
change could, among other things, impact the Company's liquidity in future
quarters. The Company is currently meeting with Ford representatives to
resolve these issues.
9
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
April 4, April 5,
1999 1998
Net revenue 100.0 % 100.0 %
Cost of sales 109.1 86.1
_____ _____
Gross (loss) profit (9.1) 13.9
Selling, general and
administrative expenses 24.9 18.2
_____ _____
Operating (loss) (34.0) (4.3)
Interest expense 2.5 1.7
_____ _____
(Loss) before income taxes (36.5) (6.0)
Income tax (benefit) provision 0 (2.3)
_____ _____
Net (loss) income (36.5)% (3.7)%
===== =====
Net Revenue. Net revenue increased 9.0% to $17.5 million for the three
months ended April 4, 1999 from $16.0 million for the comparable prior year
period. The increase in net revenue for the 1999 quarter over the prior year
first quarter resulted from the sale of Irizar buses plus a slight increase
in the sale of manufactured units which was offset by used bus sales.
Sales of cutaway models during the first quarter of 1999 were 195 units
totaling $10.1 million compared with 191 units totaling $9.8 million in the
same prior year period.
Sales of rear-engine models during the first quarter were 25 units
totaling $5.7 million including $3.8 million from the sale of 11 full-size
Irizar Century motorcoaches compared with 19 units totaling $2.4 million
during the first quarter of 1998.
10
Production backlog at April 4, 1999 was approximately $28.8 million,
including $14.2 million in orders for rear-engine transit buses.
This compares with a backlog of approximately $33 million at the end of the
first quarter of 1998 which included approximately $15 million in orders for
Irizar coaches.
Cost of Sales and Gross Profit Cost of sales increased 38.1% in the
first quarter of 1999 to $19.1 million from $13.8 million in the first
quarter of 1998. Cost of sales in the first quarter was adversely affected
by delays in production, an increase in labor costs coupled with poor labor
utilization, higher materials cost and higher than normal plant overhead.
Labor costs in the first quarter were $1.6 million compared to $1.2
million for the prior year quarter. This increase resulted from a higher
headcount, more overtime, and a four percent increase in labor rate compared
with the previous year quarter. Material costs increased from 64.8% of sales
to 73.1% of sales from the comparable period in the prior year. Plant
overhead increased 89.8% from $1.2 million to $2.2 million due in part to
increased headcount in engineering, plant maintenance and plant supervisory
personnel.
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 million
to facilitate more timely sales.
The gross loss in the first quarter was $1.6 million versus a gross
profit of $2.2 million for the prior year quarter. The decrease was caused
by the lower than planned production, underutilized labor, higher
material costs and the reduction in inventory carrying value on used buses
and demonstrators. In addition, the changes in management and parts
shortages resulted in quality issues in delivering finished buses to
customers as planned, and rear-engine bus production required higher
engineering and design cost and increased production time. These greater
than anticipated costs could not be offset by increasing selling prices.
Selling, General and Administrative Expenses and Operating Income.
The significant increases in selling, general and administrative expenses of
49.6% were caused primarily by significantly greater professional fees
incurred due to the conditions addressed above, including the hiring of
management turnaround consultants as suggested by the Company's lender, and
write-off of delinquent receivables or lease obligations under the
Company's recourse arrangements.
Interest Expense. Interest expense of $441,000 in the first quarter of
1999 represents an increase of 58.1% for the first quarter of 1998. The
increase for the quarter primarily was the result of an increase in the
average balance outstanding under the Company's revolving credit facility
during
the quarter resulting from higher inventory levels and higher accounts
receivable.
11
Liquidity and Capital Resources Net cash used in operating activities
during the three months ended April 4, 1999 totaled $3.4 million compared
with cash used in operating activities of $4.0 million in the comparable
period in 1998. Decreases in accounts receivable and inventory of $2.4
million and $5.2 million, respectively, along with increased borrowings of
$3.5 million were used to decrease accounts payable and accrued expenses by
$5.2 million and to fund current operating needs. The decrease in inventory
resulted primarily from a decrease in finished goods and chassis awaiting
conversion offset by an increase in work in process. The Company has
initiated steps and will continue to reduce inventory levels and to
accelerate the collection of accounts receivable.
Under the "Amended Credit Facility", the Company is limited to make
Capital Expenditures and will be required to use substantially all of it's
cash flow to fund future operations and reduce it's outstanding debt.
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 the
resolution of the pending litigation between the parties.
Ford Motor Company (the Company's primary supplier for chassis)
notified the Company on May 21, 1999 that they are reviewing their payment
requirement relationship with the Company. The effect of their proposed
change could, among other things, impact the Company's liquidity in future
quarters. The Company is currently meeting with Ford representatives to
resolve these issues.
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-computer or personal computer-based systems or software
applications. The Company has developed 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
delays in the implementation and integration of the new systems; however, the
Company anticipates that the new systems will be operational prior to December
31, 1999. The Company also is conducting a review of other systems, which was
substantially completed in March, 1999, at a cost not material to its
business, financial condition, or results of operations. As of May 9, 1999,
the Company anticipates it will incur up to $50,000 in replacing and converting
the Company's data processing and management information systems. The amount
may increase as additional information is obtained to complete the replacement
and conversion process.
12
The Company believes that its most reasonably likely worst case year 2000
scenarios would relate to problems with the systems of third parties rather
than
with the Company's internal systems or its products. It is clear that the
Company has the least ability to assess and remediate the year 2000 problems of
third parties and the Company believes the risks are greatest with
infrastructure (e. g. electricity supply, water and sewer service),
telecommunications, transportation supply chains and suppliers of materials.
While the Company is taking steps that it believes to be reasonable and prudent
to assess the year 2000 readiness of third parties with whom the Company does
business, the failure of any of these third parties to correct a material year
2000 problem could result in an interruption in, or a failure of, certain
normal
business activities or operations. Due to the general uncertainty inherent in
the year 2000 problem, resulting in part from the uncertainty of the year 2000
readiness of third party suppliers and customers, the Company is unable to
determine at this time whether the consequences of year 2000 failures will have
a material impact on the Company's results of operations, liquidity, or
financial condition. Readers are cautioned that forward-looking statements
contained in this year 2000 update should be read in conjunction with the
Company's disclosures regarding forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk Management
A third party foreign vendor constructs the Company's newly introduced
full-size Irizar Century motorcoach. Fluctuations in the value of the Spanish
Peseta create exposure which can adversely affect the cost of the bus. The
Company attempts to manage its foreign exchange exposure by entering into
forward exchange contracts to hedge firm purchase commitments denominated in
Pesetas. The Company does not enter into foreign currency forward contracts
for
speculative trading purposes.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Jerry J. Schweiner v. 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. Mr.
Schweiner is seeking compensatory damages in the amount of $375,000. The
Company filed its Answer and Counterclaim against Mr. Schweiner on January 28,
1999. The parties have begun discovery.
13
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. On March 15, 1999, the
Company filed 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, 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. The Company's response to the Mayflower
Defendants'
Amended Counterclaim is due on May 27, 1999. Discovery on the Company's claims
has begun.
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 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.
Item 5. Other Information
Recent Events
Effects of Continued Listing on NASDAQ. On May 14, 1999, the Company was
notified by the administrative staff of NASDAQ AMEX that the Company's Common
Stock has failed to maintain the minimum market value of public float in
accordance with NASDAQ Marketplace Rule 4450(a)(2). The Company has been
afforded 90 calendar days (up to August 16, 1999) in which to regain compliance
with Marketplace Rule 4450(a)(2). If the Company is unable
to demonstrate compliance by that date, the Company's securities may be
delisted
from trading on the NASDAQ National Market. In such event, the Company would
apply to list the Common Stock on the NASDAQ SmallCap Market, the American
Stock
Exchange, the OTC Bulletin Board or other quotation system or exchange on which
the Common Stock would qualify, until such time that the Company is able to
again qualify for listing 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.
14
Employment 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 will continue to
serve as a director of the Company, although he is no longer Chairman of the
Board. As previously announced, Mr. Henry J. Murphy currently is serving
as interim Chief Executive Officer.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report:
10.1 Employment Agreement, dated April 12, 1999, effective March 8, 1999,
between the Registrant and Henry J. Murphy.
10.2 Agreement dated March 11, 1999, between the Registrant and Arthur
Andersen
LLP.
(b) No Current Reports on Form 8-K were filed by the Company during the
Quarter ended April 4, 1999:
15
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.
METROTRANS CORPORATION
(Registrant)
Date: May 24, 1999 By:/s/ Henry J. Murphy
Henry J. Murphy
Interim Chief Executive Officer
(Principal Executive Officer
and Principal Financial
and Accounting Officer)
16
INDEX OF EXHIBITS
Exhibit No.
10.1 Employment Agreement, dated April 12, 1999, effective March 8, 1999,
between the Registrant and Henry J. Murphy.
10.2 Agreement dated March 11, 1999, between the Registrant and Arthur
Andersen
LLP.
17