FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003 Commission File Number 0-4539
TRANS-INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2598139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2637 S. Adams Road, Rochester Hills, MI 48309
(Address of principal executive offices) (Zip Code)
(248) 852-1990
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
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 and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of February 29, 2004, 3,139,737 shares of Common Stock were
outstanding and the aggregate market value of the Common Stock held by
non-affiliates of the registrant (based upon the last sale price on the NASDAQ
National Market) was approximately $7,755,150.
DOCUMENTS INCORPORATED BY REFERENCE
Information called for by Part III (Items 10, 11, 12,13, and 14) is
incorporated by reference from the Registrant's definitive proxy statement in
connection with its Annual Meeting of Shareholders to be held on June 16, 2004,
which Proxy Statement will be filed pursuant to Regulation 14A.
PART I
Item 1 Business.
Introduction
Trans-Industries, Inc. (the "Company") was incorporated in Delaware in
1967 to acquire the business of Transign, Inc., a company founded in 1952 to
manufacture mechanical bus signs. Initially, the Company produced mechanical
signage for the mass transit market, but its current efforts are concentrated on
electronic systems for the display of information, bus lighting products, and
source extraction systems for the environmental market. These products are sold
to virtually all segments of the transportation industry and to a broad range of
commercial and industrial markets.
Operations
A. Industry Segment.
By nature, all products supplied by Trans-Industries and its
subsidiaries are designed to provide comfort, convenience and safety to
passengers and properties in the transportation market. The signage is used as a
means of communication with vehicle passengers. They enable messages to be sent
to vehicle operators and passengers alike, whether the message is of alternate
routes in heavy traffic or to warn of an impending hazard. Interior bus lighting
systems provide comfort and illuminate the vehicle's interior, which improves
passenger safety. The "source extraction system" is provided to transportation
groups who use the system to clean their vehicles. This system provides a
convenient method of maintaining a cleaner, healthier, and more comfortable
atmosphere for riding passengers. The production process for all but a small
percentage of these products entails detailed testing and assembly work. The
"source extraction system" is an engineering design, assembly and installation
operation.
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The customer base for most of Trans-Industries products include:
1. State departments of transportation;
2. Bus manufacturers;
3. City and local governments and;
4. Private commercial enterprises.
B. Material Customers.
The Company has two major customers - Gillig Corporation and New
Flyer Industries - which each accounted for over 10 percent of consolidated
annual sales. Although Gillig Corp. and New Flyer Industries are highly valued
customers, the Company does not consider itself dependent upon them for
continued ongoing sales. Sales volume is significantly affected by state and
municipal government spending for mass transit, highway systems, and airports.
C. Sales Backlog.
As of February 29, 2004, the Company's backlog, after excluding
foreign operations for all years, was $11,960,000 compared with $12,447,000 and
$11,680,000 for the same dates in 2003 and 2002, respectively. Of the current
backlog, it is anticipated that 90 percent will be completed within one year.
D. Foreign and Domestic Operations and Export Sales.
Through a subsidiary, the Company operated a manufacturing,
assembly, sales, and service facility in the United Kingdom. This operation sold
products purchased from the affiliated domestic companies, as well as products
manufactured in the United Kingdom, to customers in Europe, Australia, and Asia.
Substantially all the assets of this subsidiary were sold in March of 2003 to
its managing director. See Notes J and K to the consolidated financial
statements. Additional foreign sales are made on an export basis from domestic
offices as well as through certain agents abroad. Summarized financial
information about foreign operations and exports is in Note M to the
Consolidated Financial Statements.
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E. Research and Quality Control.
The Company's principal research activities are conducted at its
product development center in Rochester Hills, Michigan, where line maintenance
and new product programs are carried out according to perceived market
opportunities. Quality control, rather than being centralized, is a function
performed at each manufacturing plant.
Approximately $954,000, $949,000 and $816,000 was spent on
research and development during the years ended December 31, 2003, 2002 and
2001, respectively.
F. Competition.
In each of its market niches the Company faces competition from
one or more entities. These entities range in size from small to large
integrated enterprises, both domestically and internationally, with no single
company dominating any one market. The Company owns and has licensed United
States and foreign patents relating to the manufacture of many of its products.
Despite these patent protections there can be no assurance that a competitor
will not copy the functions or features of the Company's products. The Company
believes that its principle methods of competition are price, service, and
product performance.
G. Raw Materials.
The principal raw materials used by the Company include steel,
aluminum, plastics, electronic components, and synthetic materials, all of which
are presently available in adequate supply on the open market.
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H. Employee Relations.
The Company employs approximately 200 people, supplemented by
temporary workers, with a minimum of these employees covered by a union contract
that expires August 10, 2006. The Company considers its overall labor relations
with employees to be good.
The Company maintains profit sharing and 401-K plans for all of
its full-time employees who are not part of a bargaining unit.
In 1996, the Company adopted a stock option plan for officers,
directors, and key employees of the Company and its subsidiaries. (See Note I to
the consolidated financial statements)
I. Environmental Considerations.
The Company believes it is in compliance with all state and
federal regulations for environmental control and safety, and the related
expenditures are generally not significant.
J. Directors and Officers of the Registrant.
See Part III, Item 10 for certain information regarding officers
and directors.
Item 2. Properties.
Domestic operations are conducted at six principal facilities.
Four are owned, of which two are located in Waterford, Michigan, one in
Rochester Hills, Michigan and one in Bad Axe, Michigan. Two locations are
leased. One of the leased facilities is an administrative office located in
Rochester Hills, Michigan under a month to month lease agreement. The other
leased facility is in Wilmington, North Carolina, and is leased through January
2006.
The production previously done in Rochester Hills has been moved
to the Bad Axe facility and the Rochester Hills plant is for sale. The Company
expects to close on the sale of this facility in the next six months.
International operations were conducted in England at a leased
facility located in Leeds. This plant is currently on the market for lease to a
third party. The lease agreement expires in December 2007. Currently, the
facility is being subleased to the party that acquired Vultron International,
LTD.
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The plants, all of which are well maintained and in good operating
condition, contain an aggregate of approximately 260,000 square feet of floor
space. Generally, the plants have been operating on a five-day a week basis with
occasional overtime.
Item 3. Legal Proceedings.
Neither the Company nor any of its subsidiaries is a party to any
material legal proceedings other than ordinary routine litigation incidental to
the business. The Company believes that the outcome of these proceedings will
have no material adverse affect on its consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through solicitations
of proxies or otherwise.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock is traded on the Over-the-Counter Market and is
included in the National Association of Securities Dealers Automated Quotation
System under the symbol TRNI. The following table sets forth the range of trade
prices as reported by the National Securities Dealers Association, Inc. for the
preceding two years:
Trade Prices
------------
High Low
---- ---
2003
First Quarter $ 5.70 $ 3.86
Second Quarter $ 5.64 $ 4.21
Third Quarter $ 4.87 $ 2.59
Fourth Quarter $ 3.22 $ 2.10
2002
First Quarter $ 3.50 $ .90
Second Quarter $ 4.00 $ 2.40
Third Quarter $ 4.00 $ 2.50
Fourth Quarter $ 4.00 $ 3.00
These quotations reflect actual transactions without retail markup, markdown, or
commission.
As of December 31, 2003, there were 218 registered holders of the
Common Stock of the Registrant.
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Item 6. Selected Financial Data.
The following selected consolidated financial data relating to the
Company and its subsidiaries has been taken from the consolidated financial
statements. Such selected consolidated financial data should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," which are included elsewhere in this report.
2003 2002 2001 2000 1999
OPERATIONS
Net Sales $33,721,456 $34,567,382 $36,135,578 $44,687,028 $39,544,177
Cost of Sales 25,284,634 25,165,989 28,013,444 35,219,941 28,167,787
Interest Expense 661,880 664,727 1,191,470 1,444,864 955,953
Income Tax Exp. (benefit) 531,000 (165,000) (1,944,000) (305,000) 392,000
Net Earnings (loss) (3,761,090) (1,343,644) (3,079,378) (2,303,258) 225,643
FINANCIAL CONDITION
Current Assets 17,224,345 21,551,418 22,478,496 25,834,537 24,664,953
Current Liabilities 15,713,505 13,065,056 13,803,098 17,652,186 15,669,461
Working Capital 1,510,840 8,486,362 8,675,398 8,182,351 8,995,492
Current Ratio 1.10 1.65 1.63 1.46 1.57
Net Property, Plant
and Equipment 3,753,732 4,116,723 4,738,521 7,292,013 7,318,657
Long Term Debt 43,290 3,185,252 4,044,584 5,263,236 3,923,634
Stockholders' Equity 5,154,343 8,908,125 10,184,408 11,307,577 13,630,120
Total Assets 21,164,517 25,903,162 28,281,338 34,763,470 33,833,827
COMMON SHARE DATA
Net Earnings (loss) (a)
Basic $ (1.20) $ (.43) $ (.98) $ (.73) $ .07
Diluted $ (1.20) $ (.43) $ (.98) $ (.73) $ .07
Book Value (b) $ 1.64 $ 2.84 $ 3.24 $ 3.60 $ 4.34
Average Shares Outstanding
Basic 3,140,000 3,140,000 3,140,000 3,140,000 3,140,000
Diluted 3,140,000 3,140,000 3,140,000 3,140,000 3,140,000
(a) Based on weighted average number of common shares and equivalents
outstanding.
(b) Based on shares outstanding at year-end.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements:
This discussion highlights significant factors influencing the
financial condition and results of operations of Trans-Industries, Inc. It
should be read in conjunction with the financial statements and related notes.
This discussion includes certain forward-looking statements based on
management's estimate of trends and economic factors in the markets in which the
Company is active, as well as the Company's business plans. In light of recent
securities law developments, including the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company notes that such
forward-looking statements are subject to risks and uncertainties. Among these
are significant changes in economic conditions and regulatory or legislative
changes that can affect the Company, its competitors, or the markets in which it
is active. The Company believes any forward-looking statements it has made are
based on current management expectations and they are subject to risks and
uncertainties. These risks and uncertainties include, but are not limited to the
following:
- Uncertainties discussed in "Management's Discussion and
Analysis" and in "Description of Business" noted above as well
as those set forth elsewhere in the Company's SEC filings;
- The potential inability to close the sale of the Company's
Rochester Hills manufacturing facility;
- The continued forbearance by the Company's bank lender of their
right to call the debt now due;
- A further decline of economic conditions in general and in the
mass transit industry in particular;
- Changes in customer requirements or reduced demand for the
Company's products and services;
- The inability of the Company to successfully implement its
restructuring program in the informational systems business;
- Competitive factors (including the introduction or enhancement
of competitive products and their successful introduction into
the marketplace);
- Product pricing decreases and component price increases that may
result in materially reduced gross profit margins for the
Company's products;
- Unforeseen increases in operating expenses;
- The inability to attract or retain management, sales or
engineering talent.
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CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Our significant accounting policies
are discussed in Note B of the notes to the consolidated financial statements
included herein. Our critical accounting policies are subject to judgments and
uncertainties, which affect the application of these policies. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. On an on-going basis, the
Company evaluates its estimates, including those related to the valuation of
accounts receivable, inventory, deferred tax assets, and property and equipment.
In the event estimates or assumptions prove to be different from actual amounts,
adjustments are made in the subsequent period to reflect more current
information. The material accounting policies that the Company believes are most
critical to the understanding of the Company's financial position and results of
operation are discussed below.
RESULTS OF OPERATIONS
2003 Compared with 2002
Sales for 2003 were $33.7 million compared to $34.6 million. This
decrease of $.9 million primarily resulted from the sale of Vultron
International, LTD. in March 2003.
The Company's pre-tax loss for 2003 amounted to $3,230,090 compared to
a pre-tax loss of $1,508,644 for the 2002 fiscal year. This resulted from among
other things, a major restructuring program in the informational systems
business initiated in July 2003. Costs associated with the restructuring
amounted to $831,862 for the fiscal year 2003. These costs are comprised of (1)
severance and vacation pay for those employees terminated, (2) consulting and
financial advisor fees associated with the advice and help
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in identifying and implementing various cost saving opportunities, (3) fees for
various leases terminated early and, (4) legal fees. In addition to these
restructuring costs an inventory write down was recorded consisting of
discontinued products such as VMX transit bus signs, multi-color reflective disc
product, and Company produced ballast. Additionally, as a part of the
restructuring plan, the Company consolidated two of its manufacturing facilities
into one. As a result, the Company thoroughly examined its inventory before
moving it to the Bad Axe facility. Where management determined excess "service"
inventory for existing products was on hand, it was decided to scrap or
establish a reserve for this excess inventory. This reserve essentially related
to liquid crystal components produced at its recently sold facility in England,
translator sign product, and VMX bus sign product. The inventory write down
totaled $1,120,000 for the fiscal year 2003 and was included in the Company's
cost of sales.
Cost of sales for 2003 was $25,284,634 compared to $25,165,989 for the
previous year. As a percentage of sales, this represents 75.0% in 2003 and 72.8%
in 2002. The change in cost of sales is primarily attributable to the Company's
restructuring, as discussed above, in that an inventory write down was recorded
consisting of discontinued products such as VMX transit bus signs, multi-color
reflective disc product, and Company produced ballast resulting in a $1,120,000
charge to cost of goods sold. This increase was offset by a decrease of
$1,419,496 resulting from the sale of Vultron International, LTD. in March 2003.
In 2003, $166,200 is included in cost of goods sold compared to $1,585,696 in
2002 relating to the Vultron International, LTD. operations.
Selling, general, and administrative expense rose slightly in 2003 to
$10,234,024 from $9,829,489 in 2002. This increase of $404,535 is primarily the
result of increased banking fees and health care costs.
Interest expense remained at approximately the same level for 2003 and
2002. Interest expense dropped to $661,880 in 2003 from $664,727 in 2002.
During the fourth quarter of 2003, the Company provided a valuation
allowance of $548,000 to reduce its net deferred tax asset to zero.
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2002 Compared with 2001
Sales for 2002 were $34.6 million compared to $36.1 million for the
previous year. This sales decrease of $1.5 million or 4.3 percent, from 2001
sales levels, was attributable to the closing of two subsidiaries in 2001. Even
though sales of the Company's electronic variable message signs increased
approximately 15% as compared to 2001, this increase was more than offset by the
sales decrease caused by the closing of two subsidiaries.
The Company's pretax loss for 2002 amounted to $1,508,643 compared to a
pretax loss of $5,022,961 for the 2001 fiscal year. Included in the pretax loss
for 2002 is a $450,000 impairment loss. The Company's wholly owned foreign
subsidiary had mounting losses during 2002 and the outlook for 2003 and beyond
was bleak. Consequently, in March of 2003, the Company sold all of the assets of
this English based Company to its managing director, thus giving rise to the
impairment loss recorded in 2002. Additionally, the Company noticed a slight
drop in its profit margin on its bus lighting product lines due to competitive
pressures and the cost of increased efforts employed to successfully maintain
its market share. Included in the pretax loss for 2001 is $2.1 million of
restructuring costs associated with the closing of two subsidiaries as well as
$2.7 million of operating losses from closed operations.
Cost of sales for 2002 was $25,165,989 compared to $28,013,444 for the
previous year. As a percentage of sales, this amounted to 72.8 percent in 2002
and 77.5 percent in 2001. This improvement of 4.7 percent was the result of
closing the two subsidiaries in 2001.
Selling, general, and administrative expenses remained at approximately
the same level for 2002 and 2001. Total administrative expenses for 2002 dropped
to $9,829,489 from $9,915,491 in 2001.
Interest expense in 2002 decreased to $664,727 from $ 1,191,470 in
2001. This decrease of $526,743 reflects lower borrowings and lower interest
rates for the 2002 year.
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ACCOUNTS RECEIVABLE VALUATION:
The Company monitors its accounts receivable and charges to expense an
amount equal to its estimate of uncollectible accounts. The Company considers a
number of factors in determining its estimates, including, the length of time
trade accounts receivable are past due, the Company's previous loss history, the
customer's current ability to pay its obligation and the condition of the
general economy and the industry as a whole. The use of different estimates for
future uncollectible accounts would result in different charges to selling,
general and administrative expenses in each period presented.
INVENTORY VALUATION:
Inventories are valued at the lower of cost or market; cost being
determined under the first in, first out method. Provision is made to reduce
inventories to net realizable value for excess and/or obsolete inventory. The
Company periodically reviews its inventory levels in order to identify obsolete
and slow-moving inventory. The use of different assumptions in determining
slow-moving and obsolete inventories would result in different charges to cost
of sales in each period presented.
DEFERRED INCOME TAXES AND VALUATION ALLOWANCE:
Deferred income tax assets and liabilities represent the future income
tax effect of temporary differences between the book and tax bases of the
Company's assets and liabilities, assuming they will be realized and settled at
the amounts reported in the Company's financial statements. The Company records
a valuation allowance to reduce its deferred tax assets to the amount that it
believes is more likely than not to be realized. This assessment includes
consideration for the scheduled reversal of temporary taxable differences,
projected future taxable income and tax planning strategies.
13
PROPERTY, PLANT AND EQUIPMENT:
The Company depreciates its property and equipment over estimated
useful lives established by management. Management has determined that useful
lives of three to ten years for machinery and equipment and ten to forty years
for buildings and improvements are appropriate lives. The use of shorter or
longer lives would result in different depreciation amounts being charged to
operations during the periods presented. The Company has also elected to
depreciate its property using the straight-line and accelerated methods. The use
of different methods would result in different depreciation charges in each of
the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
As of year-end 2003, the Company had $1.5 million of working capital
compared with $8.5 million at year-end 2002, and $8.7 million at year-end 2001.
This decrease in working capital of $7.0 million was due to significant
decreases in inventory, accounts receivable and deferred income taxes. The
valuation allowance for the Company's deferred income tax asset was increased to
100% of its value. Additionally, the Company is in default on certain loan
covenants with its bank and the Company has not received a waiver for these
defaults while the lender has reserved its rights and remedies. Pursuant to an
agreement between the Company and Comerica dated February 26, 2004, Comerica has
agreed to forbear from taking action to collect the liabilities until January 3,
2005. Among other things, the agreement requires Trans Industries to (a)
continue to apply 100% of its collections to the line of credit; (b) use its
best efforts to refinance all the debt by January 3, 2005; (c) pay interest on
the debt at a rate of prime plus 3.50%; (d) pledge to Comerica all of its common
stock holdings in its wholly owned subsidiaries; and (e) maintain certain
tangible effective net worth levels. At December 31, 2003, the Company was in
default of the tangible effective net worth requirement. This default has
continued through the first quarter of 2004. The Company is seeking a waiver
from its lender. Additionally, Comerica required personal guarantees from two of
the Company's
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directors in the amount of $500,000, for which the Company has provided
indemnifications to these directors.
As a result, the Company has reflected all of its debt with its primary lender
as current, though the lender has not accelerated term debt maturity or demanded
payment. The Company generated cash from operating activities of $2,333,000 for
the year ending December 31, 2003. Cash generated by operations was primarily
the result of a decrease in accounts receivable and an increase in accounts
payable and accrued liabilities. The Company utilized cash from investing
activities of $487,000, representing the purchase of property and equipment,
primarily tooling. Financing activities utilized $1,712,000, representing the
net reduction of bank debt for the current year.
For 2004, anticipated increases in required working capital are expected
to be met from the cash flow from operations, the sale of one of the Company's
manufacturing facilities, where production from two facilities was consolidated
into one, and the receipt of $1.5 million in our private placement of
convertible preferred stock, which was completed on March 4, 2004. At December
31, 2003, there were no material commitments for capital expenditures for the
ensuing year, beyond tooling and line maintenance requirements.
The Company's outstanding contractual obligations as of December 31,
2003 are summarized as follows:
Years Ending Operating Bank
December 31 Leases Debt Total
- ----------- ----------- ---- -----
2004 $ 250,616 $3,143,195 $3,393,811
2005 245,722 16,410 262,132
2006 183,694 13,145 196,839
2007 156,010 13,735 169,745
2008 31,524 - 31,524
---------- ---------- ----------
Total future minimum payments $ 867,566 $3,186,485 $4,054,051
========== ========== ==========
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any non-consolidated special purpose entity
arrangements, nor has the Company entered into any off balance sheet
transactions.
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DIVIDENDS
Typically, the Company does not pay cash dividends on its common stock.
See Notes F and P regarding dividends on preferred stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMANTS
In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which is effective for exit or
disposal activities that are initiated after December 31, 2002. This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. Under
Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was recognized
at the date of an entity's commitment to an exit plan. The adoption of this
pronouncement resulted in the Company recording its restructuring costs relating
to the sale of VIL and its informational systems business's operations as
incurred, as opposed to recording an estimate of the entire amount of the
restructurings at the time the plans were put in place.
In November 2002, the Emerging Issues Task Force reached a consensus
opinion on EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The
consensus provides that revenue arrangements with multiple deliverables should
be divided into separate units of accounting if certain criteria are met. The
consideration for the arrangement should be allocated to the separate units of
accounting based on their relative fair values, with different provisions if the
fair value of all deliverables are not known or if the fair value is contingent
on delivery of specified items or performance
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conditions. Applicable revenue recognition criteria should be considered
separately for each separate unit of accounting. EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003. Entities may elect to report the changes as a cumulative effect adjustment
in accordance with APB Opinion 20, Accounting Changes. The adoption of EITF
00-21 did not have a material effect on the Company's financial position or
results of operations.
In May 2003, the FASB issued Statement 150, "Accounting for Certain
Financial instruments with Characteristics of Both Liabilities and Equity". This
statement established standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in come circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003 and other wise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this statement did not
impact the Company's financial position.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to interest rate risk is limited to fluctuations
in the bank's prime lending rate which may increase or decrease the effective
interest rate on the Company's revolving credit facility. The Company is exposed
to the impact of foreign currency fluctuations. International revenues from the
foreign subsidiary were less than 1% of total revenues for the twelve months
ended December 31, 2003. The Company's primary foreign currency exposure is the
British Pound. The Company manages its exposure to foreign currency denominated
assets with liabilities in the same currency and, as such, certain exposures are
naturally offset. The Company's foreign currency loss is immaterial and as such
the exposure has been omitted. The bulk of the items purchased by the Company
are electronic components not considered commodities, as
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such there is no real commodity price risk. The Company does not hold any
derivative instruments or engage in any hedging activities.
Item 8. Financial Statements.
The following pages contain the Consolidated Balance Sheets as of
December 31, 2003 and 2002 and the related Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for each of the years in the
three-year period ended December 31, 2003, including the report of the Company's
independent certified public accountants.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Trans-Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Trans-Industries, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 2003 and 2002 and the related consolidated statements of operations,
comprehensive loss, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Trans-Industries, Inc. and Subsidiaries as of December 31, 2003 and 2002, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note A to the
consolidated financial statements, the Company has sustained recurring losses
from operations, has experienced cash flow difficulties and is in default of the
terms of its credit facility. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with
respect to this matter are also discussed in Note A. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Grant Thornton, LLP.
Southfield, Michigan
April 2, 2004
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TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2003 2002
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 166,488 $ 24,996
Accounts receivable, less allowance for doubtful
accounts of $518,000 in 2003 and $428,000
in 2002 7,617,157 9,049,864
Inventories 9,204,145 11,069,129
Refundable income taxes - 146,000
Deferred income taxes - 968,000
Prepaid expenses and other current assets 236,555 293,429
----------- -----------
Total Current Assets 17,224,345 21,551,418
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 140,089 220,564
Land improvements - 126,660
Buildings 4,257,569 5,825,461
Machinery and equipment 10,732,305 10,388,961
----------- -----------
15,129,963 16,561,646
Less accumulated depreciation and amortization 11,518,659 12,444,923
----------- -----------
Net property, plant and equipment 3,611,304 4,116,723
Goodwill, less accumulated amortization of
$74,999 in 2003 and 2002 150,369 150,369
Real estate held for sale 142,428 -
Other assets 36,071 84,652
----------- -----------
$21,164,517 $25,903,162
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
2003 2002
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 6,298,288 $ 7,072,265
Current maturities of long-term debt 3,143,195 930,845
Accounts payable 3,930,700 3,441,720
Accrued liabilities 2,341,322 1,620,226
------------- ------------
Total Current Liabilities 15,713,505 13,065,056
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 43,290 3,185,252
DEFERRED INCOME TAXES - 483,000
OTHER LIABILITIES 253,379 261,729
COMMITMENTS AND CONTINGENCIES (NOTE G) - -
STOCKHOLDERS' EQUITY
Preferred stock of $1 par value per share, authorized
500,000 shares; 19,000 issued and outstanding 19,000 19,000
Common stock of $0.10 par value per share, authorized
10,000,000 shares; 3,139,737 issued and outstanding 313,974 313,974
Additional paid-in capital 5,953,081 5,953,081
(Accumulated deficit) retained earnings (1,229,621) 2,531,469
Accumulated other comprehensive income 97,909 90,601
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 5,154,343 8,908,125
------------- ------------
$ 21,164,517 $ 25,903,162
============= ============
21
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2003 2002 2001
----------- ----------- ------------
Net sales $33,721,456 $34,567,382 $ 36,135,578
Cost of goods sold 25,284,634 25,165,989 28,013,444
----------- ----------- ------------
Gross profit 8,436,822 9,401,393 8,122,134
Selling, general and administrative expenses 10,234,024 9,829,489 9,915,491
Restructuring costs 831,862 - 2,116,153
Impairment loss - 450,000 -
----------- ----------- ------------
Operating loss (2,629,064) (878,096) (3,909,510)
Other expense (income), net
Interest expense 661,880 664,727 1,191,470
Other (60,854) (34,179) (77,602)
----------- ----------- ------------
601,026 630,548 1,113,868
----------- ----------- ------------
Loss before income taxes (3,230,090) (1,508,644) (5,023,378)
Income tax expense (benefit) 531,000 (165,000) (1,944,000)
----------- ----------- ------------
Net loss $(3,761,090) $(1,343,644) $ (3,079,378)
=========== =========== ============
Loss per share:
Basic $ (1.20) $ (.43) $ (.98)
=========== =========== ============
Diluted $ (1.20) $ (.43) $ (.98)
=========== =========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31,
2003 2002 2001
----------- ----------- -----------
Net loss $(3,761,090) $(1,343,644) $(3,079,378)
Other comprehensive income
Equity adjustment from foreign
currency translation 7,308 67,361 56,209
----------- ----------- -----------
Comprehensive loss $(3,753,782) $(1,276,283) $(3,023,169)
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
23
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
RETAINED ACCUMULATED
ADDITIONAL EARNINGS OTHER
REFERRED COMMON PAID-IN (ACCUMULATED COMPREHENSIVE
STOCK STOCK CAPITAL DEFICIT) INCOME (LOSS) TOTAL
------- -------- ---------- ----------- ------------- -----------
Balance at January 1, 2001 - $313,974 $4,072,081 $6,954,491 $(32,969) $11,307,577
Issuance of 19,000 shares of
preferred stock 19,000 - 1,881,000 - - 1,900,000
Net loss - - - (3,079,378) - (3,079,378)
Other comprehensive income - - - - 56,209 56,209
------- -------- ---------- ---------- -------- -----------
Balance at December 31, 2001 19,000 313,974 5,953,081 3,875,113 23,240 10,184,408
Net loss - - - (1,343,644) - (1,343,644)
Other comprehensive income - - - - 67,361 67,361
------- -------- ---------- ---------- -------- -----------
Balance at December 31, 2002 19,000 313,974 5,953,081 2,531,469 90,601 8,908,125
Net loss - - - (3,761,090) - (3,761,090)
Other comprehensive income - - - - 7,308 7,308
------- -------- ---------- ---------- -------- -----------
Balance at December 31, 2003 $19,000 $313,974 $5,953,081 $(1,229,621) $97,909 $5,154,343
======= ======== ========== =========== ======= ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2003 2002 2001
----------- ---------- ----------
OPERATING ACTIVITIES
Net loss $(3,761,090) $(1,343,644) $(3,079,378)
Adjustments to reconcile net loss to net
cash provided by (used in) operations:
Depreciation of property, plant and equipment 862,678 939,344 1,055,681
Bad debt expense 104,378 378,921 397,598
Amortization and write-off of goodwill - - 1,337,616
Loss on disposal of Vultron International, LTD assets 272,859 - -
Inventory write down 1,120,000 - -
Impairment loss - 450,000 -
(Gain) loss on sale of property and equipment (12,875) (21,384) 820,238
Deferred income tax expense (benefit) 485,000 1,336,000 (1,205,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,328,329 (572,768) 1,671,920
(Increase) decrease in inventories 472,125 (28,864) 1,749,713
(Decrease) increase in accounts payable 1,210,076 (84,793) (3,408,684)
Increase (decrease) in other 251,455 826,160 (404,890)
--------- ---------- ----------
Net cash provided by (used in) operating activities 2,332,935 1,878,972 (1,065,186)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (499,687) (589,663) (444,785)
Proceeds from sale of property and equipment 12,875 109,624 1,122,358
--------- ---------- ----------
Net cash (used in) provided by investing activities (486,812) (480,039) 677,573
FINANCING ACTIVITIES
Borrowings from long-term debt - 27,576 -
Repayments of long-term debt (937,962) (1,033,175) (954,565)
Net repayments of note payable to bank (773,977) (597,481) (770,003)
Proceeds from issuance of preferred stock - - 1,900,000
--------- ---------- ----------
Net cash (used in) provided by financing activities (1,711,939) (1,603,080) 175,432
Effect of foreign currency exchange rate changes 7,308 67,361 56,209
--------- ---------- ----------
Net increase (decrease) in cash 141,492 (136,786) (155,972)
Cash at beginning of year 24,996 161,782 317,754
----------- ----------- -----------
Cash at end of year $ 166,488 $ 24,996 $ 161,782
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 639,596 $ 760,988 $ 1,160,956
=========== =========== ===========
Income taxes paid $ - $ - $ -
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY:
In March 2003, the Company sold the assets of Vultron International, Ltd for a
$160,000 note receivable.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
NOTE A - NATURE OF OPERATIONS
The Company is a multinational manufacturer of lighting and information display
systems. The principal markets for its products are the United States, the
United Kingdom and Canada. Sales volume is significantly affected by state and
municipal government spending for mass transit, highway systems and airports.
GOING CONCERN MATTERS
The Company has sustained losses from operations in each of the three years
ended December 31, 2003. During 2003 and 2002, the Company was in default of the
covenant contained in its credit facility. In November 2002, the Company's
primary lender requested that the Company seek alternate financing. Management
has taken a number of steps to become profitable, including ceasing operations
at Transmatic Window Systems, Inc., (TWS) and Transmatic Europe, Ltd., (TMEL)
(See Note K), and selling Vultron International, Ltd.,(VIL) in March 2003 (See
Note K). Other steps taken in 2003 included the consolidation of the
manufacturing facilities at Vultron, the building of an experienced management
team, and increased cost containment efforts at Vultron. In March 2004, the
Company received an influx of capital of $1.5 million in convertible preferred
stock, from a member of the Company's Board of Directors, (see note P).
Additionally, the Company has signed an agreement to sell the vacated Vultron
facility and anticipates closing to occur at the end of the second quarter or
early part of the third quarter. Management believes the actions set forth
above, as well as the successful completion of the restructuring commenced in
2003 will enable the Company to continue as a going concern. If the Company is
not successful in implementing these plans, management may be forced to curtail
certain operations or sell or discontinue certain product lines.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent company
and its wholly owned subsidiaries (the Company). All significant intercompany
balances and transactions have been eliminated in consolidation. The financial
statements as of December 31, 2003 and 2002 and for the years ended December 31,
2003, 2002 and 2001 include the accounts of the Company's wholly-owned
subsidiaries, Transmatic, Inc., Transign, Inc., Vultron, Inc., The Lobb Company,
VIL, TWS, and TMEL. As discussed in Note J, during 2001, the Company completed a
restructuring plan, which included the ceasing of operations at TWS and TMEL.
Also, during March 2003, the Company completed the Sale of VIL. As such, TWS and
TMEL are excluded from the consolidated financial statements as of and for the
years ended December 31, 2002, and 2003, and VIL's operations from March 2003
through December 31, 2003 are excluded from the consolidated financial
statements as of and for the year ended December 31, 2003.
ACCOUNTS RECEIVABLE
Accounts receivable consist solely of amounts billed to customers. The majority
of the Company's accounts receivable are due from state and local governments
and companies in the transportation industry. Credit is extended based on
evaluation of a customers' financial condition, and generally, collateral is not
required. Accounts receivable are generally due within 30 days and are stated at
amounts due from customers net of an allowance for doubtful accounts. Accounts
outstanding longer than the contractual payment terms are considered past due.
The Company determines its allowance by considering a number of factors,
including the length of time trade accounts receivable are past due, the
Company's previous loss history, the customer's current ability to pay its
obligation to the Company, and the condition of the general economy and the
industry as a whole. The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
26
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Changes in the Company's allowance for doubtful accounts are as follows:
2003 2002 2001
-------- -------- --------
Balance at January 1, $428,000 $481,000 $656,000
Bad debt expense 104,000 379,000 398,000
Accounts written off (14,000) (432,000) (573,000)
-------- -------- --------
Balance at December 31, $518,000 $428,000 $481,000
======== ======== ========
REVENUE RECOGNITION
Revenue from product sales is recorded when delivery has occurred or title has
passed, persuasive evidence of an arrangement exists, the price is fixed and
determinable and collectibility is reasonably assured.
Under arrangements containing multiple elements, revenue is allocated to each
element based upon its relative fair value. Revenue from each element is
recognized when delivery occurs or title has passed and collectibility is
reasonably assured.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market (net
realizable value).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided using
straight line and accelerated methods over the estimated useful lives of the
assets, which range from 10-40 years for buildings and 3-10 years for machinery
and equipment. The Company reviews the carrying value of property, plant, and
equipment for impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the estimated future cash
flows expected to result from its use and eventual disposition. In cases where
undiscounted expected future cash flows are less than the carrying value, an
impairment loss is recognized equal to an amount by which the carrying value
exceeds the fair value of assets. The factors considered by management in
performing this assessment include current operating results, trends, and
prospects, as well as the effects of obsolescence, demand, competition, and
other economic factors.
GOODWILL
Goodwill was recorded in connection with the Company's acquisitions of Transign,
Inc., the Lobb Company and Transmatic Window Systems, Inc., (f/k/a Plastech
Transparencies, Inc.). Through December 31, 2001, the Company was amortizing
goodwill over a 10 to 30 year period, using the straight-line method. Effective
January 1, 2002, the Company adopted the provisions of Statement No. 142,
"Goodwill and Other Intangible Assets", ("SFAS 142") that was issued by the
Financial Accounting Standards Board in July 2001. SFAS 142, which is effective
for years beginning after December 15, 2001, addresses how intangible assets,
including goodwill, that are acquired individually or with a group of other
assets should be accounted for in financial statements upon their acquisition.
SFAS 142 also specifies that goodwill is no longer subject to amortization, but
must be measured for impairment annually or when an impairment indicator exists.
A fair value approach is used to test for impairment. An impairment charge is
recognized for the amount, if any, by which the carrying amount of the
intangible assets exceeds its fair value. The Company completed its annual
impairment test as of December 31, 2003 and determined that no impairment loss
should be recognized. Fair values were established using estimated future cash
flows.
27
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of the net loss and loss per share reported in the statements
of operations to the net loss and loss per share adjusted for the effect of
goodwill amortization is as follows:
YEARS ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001
----------- ----------- -----------
Net loss:
Reported net loss $(3,761,090) $(1,343,644) $(3,079,378)
Amortization of goodwill - - 148,487
----------- ----------- -----------
Adjusted net loss $(3,761,090) $(1,343,644) $(2,930,891)
=========== =========== ===========
Loss per share:
Reported loss per share $ (1.20) $ (.43) $ (.98)
Amortization of goodwill - - .05
----------- ----------- -----------
Adjusted loss per share $ (1.20) $ (.43) $ (.93)
=========== =========== ===========
STOCK BASED COMPENSATION
The Company has a stock-based employee compensation plan, which is described
more fully in Note I. The Company accounts for this plan under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based employee compensation
cost is reflected in net loss, as all options granted under this plan had an
exercise price greater than or equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect on
net loss and loss per share if the company had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
YEARS ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001
------------- ------------- -------------
Net loss, as reported $ (3,761,090) $ (1,343,644) $ (3,079,378)
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of tax (35,910) (36,115) (75,620)
------------- ------------- -------------
Pro forma net loss $ (3,797,000) $ (1,379,759) $ (3,154,998)
============= ============= =============
Loss per share:
Basic - as reported $ (1.20) $ (.43) $ (.98)
Basic - pro forma $ (1.21) $ (.44) $ (1.00)
Diluted - as reported $ (1.20) $ (.43) $ (.98)
Diluted - pro forma $ (1.21) $ (.44) $ (1.00)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions for the options and SAR's granted in 2001: risk-free interest rate
of 5.4%; volatility of 71.42%; expected lives of 10 years for options and four
years for SAR's, and no dividend yield. No options were granted during 2003 and
2002.
28
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated principally at
year-end exchange rates. Income and expense accounts are converted using the
average exchange rate prevailing throughout the period. The gains and losses
resulting from the translation of these accounts are reported as a separate
component of stockholders' equity.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development costs approximated $954,000, $949,000 and $816,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.
WARRANTIES
The Company records a liability for an estimate of costs that it expects to
incur under its limited warranty when product revenue is recognized. Factors
affecting the Company's warranty liability include the number of units sold and
historical and anticipated rates of claims and costs per claim. The Company
periodically assesses the adequacy of its warranty liability based on changes in
these factors. Historically, the Company's warranty costs have been
insignificant.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and the effects of operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of the line of credit facility and
long-term debt. The carrying value approximates the estimated fair value based
upon rates and terms available for loans and notes with similar characteristics.
SELF INSURANCE
The Company maintains a Voluntary Employee Benefit Trust (the Trust), to cover
all or a portion of certain medical and dental expenses to eligible
participants. Participants are required to contribute a portion of their
compensation to the Trust. The Trust has insurance to cover catastrophic claims.
The Trust accrues for known claims plus an estimate of claims incurred but not
reported. The Company contributes to the Trust amounts sufficient to fund any
shortfall in Trust assets. Contributions are recorded as a component of cost of
goods sold and selling, general and administrative expenses.
29
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE C - LOSS PER SHARE
For all years presented, all stock options and SAR's outstanding have been
excluded from the computation of diluted loss per share, as the effect would be
antidilutive. The weighted average common shares outstanding was 3,139,737, for
all years presented.
NOTE D - INVENTORIES
The major components of inventories at December 31 are:
2003 2002
------------- -------------
Raw materials and purchased parts $ 4,886,286 $ 6,810,004
Work in process 2,373,247 3,731,319
Finished goods 1,944,612 527,806
------------ ------------
$ 9,204,145 $ 11,069,129
============ ============
NOTE E - NOTE PAYABLE AND LONG-TERM DEBT
The Company has a secured line of credit facility with a bank collateralized by
substantially all assets of the Company. The facility allows the Company to
borrow up to $7,500,000. The facility bears interest at the bank's prime lending
rate plus 3.0% (effective rate of 7.0% at December 31, 2003). Interest is
payable monthly. The Company's credit agreement requires the Company to earn
$1.00 on a pretax basis each month. The agreement also restricts the payment of
dividends, repurchase of common stock, and acquisition of property and
equipment.
Long-term debt at December 31 consisted of the following:
2003 2002
------------- -------------
Term note, payable in monthly installments of $35,607, including interest at the
bank's prime lending rate plus 3.0% (effective rate of 7.0% at December 31,
2003) with a balloon payment of $1,690,022 on January 1, 2005. The note is
secured by substantially all the assets of the Company. $ 1,999,168 $ 2,293,853
Term note payable in monthly installments $50,965 plus interest at the bank's
prime lending rate plus 3.0% (effective rate of 7.0% at December 31, 2003) with
a balloon payment of $509,652 on January 1, 2005. The note is secured by
substantially all the assets of the Company. 1,121,234 1,732,816
Other notes payable 66,083 89,428
------------- -------------
3,186,485 4,116,097
Less current maturities 3,143,195 930,845
------------- -------------
$ 43,290 $ 3,185,252
============= =============
The aggregate maturities of long-term debt by year are as follows:
2004 $ 3,143,195
2005 16,410
2006 13,145
2007 13,735
------------
$ 3,186,485
============
30
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE E - NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
The Company continues to be in default of certain covenants in its credit
agreement. The Company has not received a waiver for these defaults and the
lender has reserved its rights and remedies. The lender has been monitoring the
Company's demand line of credit and its term mortgage loans. Efforts are
currently underway to refinance this debt. Trans-Industries has retained
Relational Advisors, LLC., financial advisors, to assist with ongoing
discussions with its lender, and in the refinancing efforts of the debt. As a
result of these circumstances, the Company has reflected all of its existing
lender debt as current, though the lender has not accelerated term debt maturity
or demanded payment. Additionally, on February 26, 2004 the bank increased the
interest rate on all bank debt from prime plus 3.00% to prime plus 3.50%.
Pursuant to an agreement between the Company and Comerica Bank (Comerica) dated
February 26, 2004, Comerica has agreed to forbear from taking action to collect
the liabilities until January 3, 2005. Among other things, the agreement
requires Trans-Industries to (a) continue to apply 100% of its collections to
the line of credit; (b) use its best efforts to refinance all the debt by
January 3, 2005; (c) pay interest on the debt at a rate of prime plus 3.50%; (d)
pledge to Comerica all of its common stock holdings in its wholly owned
subsidiaries; and (e) maintain certain tangible effective net worth levels. The
Company is not in compliance with the tangible net worth covenant and is seeking
a waiver. Additionally, Comerica required personal guarantees from two of the
Company's directors each in the amount of $250,000, for which the Company has
provided indemnifications to these directors.
The Company has begun negotiations with several other lenders to replace
Comerica. The Company has targeted the third quarter of 2004 for the completion
of new financing, however, there can be no assurance of when, or if, the
successful completion of any agreement with one of these other lenders will
occur.
NOTE F - PREFERRED STOCK
During June 2001, the Company issued 19,000 shares of 8.25% cumulative preferred
stock with a par value of $1 to the Trans-Industries, Inc. Employees 401(k) and
Profit Sharing Plan for $1,900,000. Dividends in arrears at December 31, 2003
are $391,875 or $20.63 per preferred share. During March 2004, the Company
issued 193,799 shares of Series B Convertible Preferred Stock. See Note P.
NOTE G - LEASES
The Company leases facilities and equipment under operating leases with terms
ranging from a month-to-month basis to five years. Rent expense for all
operating leases approximated $527,000, $504,000, and $803,000 for 2003, 2002
and 2001, respectively. Future minimum rentals required under noncancelable
lease agreements are as follows:
Years Ending Operating
December 31 Leases
----------- ----------
2004 $ 250,616
2005 245,722
2006 183,694
2007 156,010
2008 31,524
---------
Total future minimum payments $ 867,566
=========
31
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE H - INCOME TAXES
The components of loss before income taxes were as follows:
2003 2002 2001
----------- ----------- -----------
Domestic $(2,639,098) $ (545,374) $(3,811,605)
Foreign (590,992) (963,270) (1,211,773)
----------- ----------- -----------
$(3,230,090) $(1,508,644) $(5,023,378)
=========== =========== ===========
Income taxes have been charged to operations as follows:
2003 2001 2000
----------- ----------- -----------
Current $ 46,000 $(1,501,000) $ (739,000)
Deferred 485,000 1,336,000 (1,205,000)
----------- ----------- -----------
Total income tax expense(benefit) $ 531,000 $ (165,000) $(1,944,000)
=========== =========== ===========
A reconciliation of actual income tax benefit to the expected amounts computed
by applying the effective U.S. federal income tax rate of 34 percent to losses
before income taxes is as follows:
2003 2002 2001
----------- ----------- -----------
Expected income tax benefit $(1,098,000) $ (513,000) $(1,708,000)
Amortization and write-off of goodwill
not deductible for income tax purposes -- -- 455,000
Losses of foreign subsidiaries without tax effect -- 175,000 412,000
Expiration of foreign tax loss carryforwards and
change in foreign effective tax rate -- 297,000 --
Loss on disposal of subsidiaries -- -- (1,334,000)
Change in valuation allowance 1,636,000 (124,000) 386,000
Income tax credits -- -- (238,000)
Other items, net (7,000) -- 83,000
----------- ----------- -----------
Actual income tax expense(benefit) $ 531,000 $ (165,000) $(1,944,000)
=========== =========== ===========
32
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE H - INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant deferred
tax assets and liabilities at December 31, 2003 and 2002 are as follows:
DEFERRED DEFERRED
TAX TAX
YEAR ENDED DECEMBER 31, 2003 ASSETS LIABILITIES
- ------------------------------------- ----------- -----------
Property, plant and equipment, principally depreciation $ - $ (334,000)
Inventory valuation 685,000 -
Accrued expenses, deductible when paid 524,000 -
Foreign tax loss carryforwards 1,057,000 -
US tax loss carryforwards 1,126,000 -
US tax credit carryforwards 16,000 -
---------- ----------
3,408,000 (334,000)
Less valuation allowance on deferred tax assets (3,408,000) 334,000
---------- ----------
$ - $ -
=========== ==========
DEFERRED DEFERRED
TAX TAX
YEAR ENDED DECEMBER 31, 2002 ASSETS LIABILITIES
- ------------------------------------- ----------- -----------
Property, plant and equipment, principally depreciation $ - $ (234,000)
Inventory valuation 792,000 -
Accrued expenses, deductible when paid 355,000 -
Foreign tax loss carryforwards 960,000 -
US tax credit carryforwards 50,000 -
---------- ----------
2,157,000 (234,000)
Less valuation allowance on deferred tax assets (1,438,000) -
---------- ----------
$ 719,000 $ (234,000)
=========== ==========
The Company has foreign tax net operating loss carryforwards of approximately
$3,522,000 at December 31, 2003 and 2002. These net operating losses
carryforward indefinitely; however, with the sale of VIL's assets (See Note J)
it is questionable whether they will be utilized. Additionally, the Company has
US tax net operating losses of approximately $3,312,000, which expire in 2022,
and 2023. A valuation allowance of $3,074,000 has been recognized to reduce the
deferred tax assets principally due to the uncertainty of realizing their
benefit. The valuation allowance increased by $1,636,000 in 2003 and decreased
by $124,000 in 2002.
NOTE I - EMPLOYEE BENEFIT PLANS
The Company has a Voluntary Employee Benefit Trust (the Trust) designed to
provide for the payment or reimbursement of all or a portion of certain medical
and dental expenses to eligible participants. Eligible participants include
active full-time employees of the Company and their dependents. Eligible
terminated and retired employees may continue to participate in the Trust, on a
contributory basis, for up to 18 months subsequent to the date of termination or
retirement. The provision for Company contributions to the Trust approximated
$1,378,000, $1,128,000 and $657,000 for the years ended December 31, 2003, 2002
and 2001, respectively.
The Company has a deferred compensation plan (Trans-Industries, Inc. Employees
401(k) and Profit Sharing Plan) for all employees who are not part of a
bargaining unit. Company contributions are voluntary and are established as a
percentage of each participant's base salary. Company contributions to the
deferred compensation plan were approximately $45,000. $43,000 and $45,000 for
2003, 2002 and 2001, respectively.
33
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE I - EMPLOYEE BENEFIT PLANS (CONTINUED)
In 1996, shareholders approved the adoption of the 1996 Stock Option Plan (the
Plan) for the officers, directors, and key employees of the Company.
The Plan is administered by an Option Committee (the Committee) appointed by the
Board of Directors. The Committee has the authority, subject to Board of
Directors resolutions and the provisions of the Plan, to determine the persons
to whom awards will be granted, the number, type and terms of the awards,
including vesting and to interpret the Plan.
The Plan permits the granting of incentive stock options, non-qualified stock
options and stock appreciation rights (SAR's). The total number of shares of
common stock with respect to which awards may be granted under the Plan is
200,000 shares. The option price of each option and the base for calculation of
appreciation of each SAR will be no less than the fair market value at the date
of grant. The term of each option will be fixed and may not exceed ten years
from the date of grant. The Committee may make options exercisable in
installments and may accelerate exercisability.
A summary of the status of the Plan as of December 31, 2003, 2002 and 2001 and
changes during the years then ended is as follows:
2003 2002 2001
-------------------------- -------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
STOCK EXERCISE STOCK EXERCISE STOCK EXERCISE
OPTIONS SAR'S PRICE OPTIONS SAR'S PRICE OPTIONS SAR'S PRICE
------- ------- -------- ------- ------- -------- -------- ------- --------
Outstanding at
beginning of year 152,000 21,000 $ 6.37 152,000 24,000 $ 6.49 149,200 15,000 $7.08
Granted - - - - - - 15,000 9,000 2.66
Forfeited (36,000) - 7.80 - (3,000) 13.50 (12,200) - 6.88
------- ------ ------- ------ ------- ------
Outstanding at
end of year 116,000 21,000 $ 5.99 152,000 21,000 $ 6.37 152,000 24,000 $6.49
======= ====== ======== ======== ======= ======= ======= ====== =====
2003 2002 2001
------------------ ------------------ -----------------
STOCK STOCK STOCK
OPTIONS SAR'S OPTIONS SAR'S OPTIONS SAR'S
------- ----- ------- ----- ------- -----
Exercisable at year end 98,000 17,940 125,000 10,890 116,000 6,960
Weighted average fair value of
grants during the year N/A N/A N/A N/A $2.17 $1.47
34
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE I - EMPLOYEE BENEFIT PLANS (CONTINUED)
The options have a ten-year life with twenty percent vesting in each of the
first five years. The SAR's are for a four-year duration with one-third vesting
in each of the first three years. Holders of SAR's will upon exercise, receive
in cash or other property at the sole discretion of the option committee, the
difference between the base price and the market price of the Company's stock on
the date of exercise. Since the SAR's were issued in tandem with stock options,
upon exercise of an SAR the holder must surrender an equivalent number of stock
options.
NOTE J - IMPAIRMENT LOSS
In November 2002, the Company's Board of Directors approved a plan to wind down
the operations of VIL. The assets and liabilities of VIL were treated as an
asset group and tested for impairment, resulting in a $450,000 impairment loss.
The loss equals the amount by which the carrying value of the asset group
exceeded its estimated fair value. The estimated fair value of $160,000 equals
the selling price of the asset group in March 2003. The assets and liabilities
of VIL at December 31,2002 were presented on a held and used basis, as the
criteria to be classified as held for sale were not met.
NOTE K - RESTRUCTURING CHARGES
In March 2003, the Company sold the assets of its foreign subsidiary, VIL to its
managing director. As a result, the Company recorded restructuring charges in
the amount of $272,859. Additionally, in July 2003, the Company initiated a
significant restructuring program at Vultron, Inc., its informational systems
business. Costs associated with the restructuring, as detailed in the table
below, include (1) severance and vacation pay for those employees terminated,
(2) consulting and advisor fees incurred associated with advice and help in
identifying and implementing various cost saving opportunities, (3) fees for
various leases terminated early, and (4) legal fees. The Company expects to
incur consulting fees of approximately $150,000 through June of 2004.
Severance and Vacation $195,653
Consulting and Advisors Fees 321,989
Cancelled Leases 2,831
Legal Fees 38,530
--------
Subtotal 559,003
Sale of VIL 272,859
--------
Total $831,862
========
In addition to the restructuring costs discussed above, the Company recorded an
inventory write down of $1,120,000 relating principally to discontinued product
offerings, which were discontinued in connection with the restructuring of
Vultron, Inc. This amount is included in cost of goods sold.
35
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE K - RESTRUCTURING CHARGES (CONTINUED)
During the year ended December 31, 2001, the Company commenced and completed a
restructuring plan, which resulted in the consolidation of its operations in
England and the ceasing of the operations of TWS, its bus window manufacturer.
In connection with the restructuring, the Company recorded restructuring costs
as follows:
Write-off of TWS Goodwill $1,198,129
Loss on disposal of property and equipment 810,956
Severance and other costs 107,068
----------
$2,116,153
==========
In addition to the restructuring costs discussed above, the Company recorded a
loss on disposal of TWS inventory totaling $169,855, which is included in cost
of goods sold.
NOTE L - SIGNIFICANT CUSTOMERS
The Company conducts its business through distributors, end users and other
entities under purchase orders, supply contracts and other agreements.
Information with respect to significant customers is as follows:
ACCOUNTS
REVENUES RECEIVABLE
FROM FROM
NUMBER OF CUSTOMERS CUSTOMERS
SIGNIFICANT DURING THE AT END OF
YEAR ENDED CUSTOMERS YEAR YEAR
- --------------------- ----------- ---------- ----------
December 31, 2003 Two $10,171,000 $1,711,000
December 31, 2002 Two 9,022,000 1,493,000
December 31, 2001 Two $10,285,000 $1,781,000
NOTE M - SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one market segment, the transportation industry.
Financial information summarized by geographic location is as follows:
2003 2002 2001
------------------------ ------------------------- -----------------------
LONG- LONG- LONG-
LIVED LIVED LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
----------- ---------- ----------- ---------- ----------- ---------
United States $24,869,852 $3,940,172 $26,906,498 $4,351,744 $25,518,733 $5,584,995
United Kingdom 251,474 - 1,492,352 - 2,634,450 217,847
Canada 7,999,019 - 5,958,468 - 7,701,805 -
Other 601,111 - 210,064 - 280,590 -
----------- ---------- ----------- ---------- ----------- ----------
Total $33,721,456 $3,940,172 $34,567,382 $4,351,744 $36,135,578 $5,802,842
=========== ========== =========== ========== =========== ==========
36
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE N - UNAUDITED QUARTERLY RESULTS OF OPERATIONS
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 2002 2002 2002 2002
- ----------------------- ----------- ------------ ---------- ----------
Net sales $ 9,909,181 $7,603,082 $8,256,438 $8,798,681
Cost of sales 7,713,388 5,592,213 6,050,842 5,809,546
----------- ---------- ---------- ----------
Gross profit $ 2,195,793 $2,010,869 $2,205,596 $2,989,135
=========== ========== ========== ==========
(Loss) earnings applicable to common stock $(1,204,020) $ (491,992) $ 42,953 $ 309,415
=========== ========== ========== ==========
Basic and diluted (loss) earnings per
common share $ (.38) $ (.16) $ .01 $ .10
=========== ========== ========== ==========
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 2003 2003 2003 2003
- ----------------------- ----------- ------------ ---------- ----------
Net sales $ 8,217,849 $ 8,310,848 $8,542,959 $8,649,800
Cost of sales 6,137,775 7,225,458 5,862,470 6,058,931
----------- ----------- ---------- ----------
Gross profit $ 2,080,074 $ 1,085,390 $2,680,489 $2,590,869
=========== =========== ========== ==========
Loss applicable to common stock $(1,490,126) $(1,660,716) $ (136,830) $ (473,418)
=========== =========== ========== ==========
Basic and diluted loss per common share $ (.47) $ (.53) $ (.04) $ (.15)
=========== =========== ========== ==========
During the fourth quarter of 2003, the Company provided a valuation allowance of
$548,000 to reduce its net deferred tax asset to zero.
NOTE O - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities", which is effective for exit or disposal activities
that are initiated after December 31, 2002. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost as defined in Issue 94-3 was recognized at the date
of an entity's commitment to an exit plan. The adoption of this pronouncement
resulted in the Company recording its restructuring costs relating to the sale
of VIL and its informational systems business's operations as incurred, as
opposed to recording an estimate of the entire amount of the restructurings at
the time the plans were put in place.
In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The consensus
provides that revenue arrangements with multiple deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the arrangement should be allocated to the separate
37
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE O - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
units of accounting based on their relative fair values, with different
provisions if the fair value of all deliverables are not known or if the fair
value is contingent on delivery of specified items or performance conditions.
Applicable revenue recognition criteria should be considered separately for each
separate unit of accounting. EITF 00-21 is effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. Entities may elect
to report the changes as a cumulative effect adjustment in accordance with APB
Opinion 20, Accounting Changes. The adoption EITF 00-21 did not have a material
effect on the Company's financial position or results of operations.
In May 2003, the FASB issued Statement 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). This Statement is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of this statement did not impact the Company's
financial position.
NOTE P- SUBSEQUENT EVENT
On March 4, 2004, the Company completed the sale of 193,799 shares of Series B
Convertible Preferred Stock and warrants to purchase 145,349 shares of common
stock to a member of the Company's Board of Directors for $1,500,000. The
warrants have an exercise price of $3.00 per share. Additionally, the Company
granted an option to the Board member to purchase between $500,000 and
$1,500,000 of additional shares of Series B Convertible Preferred Stock for
$9.00 per share and related warrants to purchase 25% of the number of shares of
common stock initially issuable upon conversion of such additional shares of
Series B Convertible Preferred Stock. Following is a summary of the Series B
Convertible Preferred Stock.
DIVIDENDS
The holder is entitled to receive cumulative quarterly dividends at a rate per
annum of $0.387 per share, commencing on April 1, 2004. The Company at its
option, in no more than eight of the first twelve full quarters, may elect to
pay the accruing dividends in additional shares of Series B Convertible Stock,
at $7.74 per share, or in cash.
CONVERSION
At the holder's option, each share of Series B Preferred Stock is convertible
into three shares of the Company's common stock. At any time after February 27,
2007 and on the business day immediately following the period of 30 consecutive
business days on which trades occur during which the market price of the
Company's common stock equals or exceeds $5.16 per share, each share of Series B
Convertible Preferred Stock will automatically be converted into three shares of
common stock.
38
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2003, 2002 AND 2001
NOTE P - SUBSEQUENT EVENT (CONTINUED)
REDEMPTION
At any time after February 27, 2007, the Company may, at its option, redeem all,
but not less than all of the holder's shares of Series B Convertible Preferred
Stock by paying cash equal to the stated value, $7.74 per share, plus all
declared or accumulated but unpaid dividends.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holder of each share of Series B
Convertible Preferred Stock is entitled to receive, prior to and in preference
to any distributions to the holders of common stock, an amount equal to the
stated value of $7.74 per share, plus unpaid, accrued and accumulated dividends.
VOTING RIGHTS
The holder has the right to vote with other stockholders of the Company on an
as-converted basis.
39
Item 9 Changes in and disagreements with accountants on accounting and financial
disclosure
Not applicable
Item 9A Control and Procedures
As of December 31, 2003, an evaluation was carried out under the
supervision and with the participation of the Company's management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15 (e) and 15d-15 (e) under the Securities Exchange Act of 1934).
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, with the exception of the item listed below, the design
and operation of these disclosure controls and procedures were effective for
gathering, analyzing and disclosing information required to be disclosed in
connection with the Company's filing of its annual report on Form 10-K for the
year ended December 31, 2003.
Recent filings of the Company's annual reports on Form 10-K have been
filed in a timely manner. However, the Company had to extend the filing deadline
for this Form 10-K and its September 30, 2003 Form 10-Q because it lacked the
resources to address the financial reporting related to significant and complex
business transactions. The Company intends to evaluate its resources and make
appropriate changes to provide sufficient resources and additional time to
prepare our periodic reports. We also will provide additional time for reviews
by management, the Audit Committee and the Board of Directors, and file our
periodic reports within the unextended time periods specified in the SEC's rules
and regulations.
Our independent auditors have advised the Company that the above
represents a reportable condition.
Since the date of the evaluation, there have been no significant
changes to the Company's disclosure controls and procedures or significant
changes in other factors that could affect the Company's disclosure controls and
procedures. However, as noted above, the Company has taken, and is continuing to
take, certain actions designed to enhance its disclosure controls and
procedures.
40
PART III
Item 10. Directors and Executive Officers of the Registrant.
Name of Director (a)
or Officer (b) Age Office Held and/or Principal Occupation Term Expires
- -------------------- --- ------------------------------------------ ------------
Dale S. Coenen (a) 75 Chairman of the Board since 1972. June 2004
and (b)
Duncan Miller (a) 79 Director since 1967, Investment January 2004
Counselor.
Harry E. Figgie, Jr. (a) 80 Director 2000-2003, Reappointed 2004 June 2004
Robert J. Ruben (a) 80 Secretary since 1967, Director since 2001. June 2004
James O'Brien (a) 50 Director since April 2004 June 2004
Richard A. Solon (a) 50 President-Trans-Industries, Inc. June 2004
and (b) since April 2004
Kai R. Kosanke (b) 53 Vice-President, Controller & Treasurer June 2004
since January, 1987
Keith LaCombe (b) 44 Assistant Secretary since May 2002. June 2004
Assistant Treasurer since May 2002.
Robert Anderson (b) 44 Secretary since 2002. June 2004
O.K. Dealey, Jr. (a) 63 President - Transmatic, Inc. June 2004
and (b) Director since 1998.
The Company's directors and executive committee's fees for 2003 were as
follows: Dale S. Coenen $25,000.00; Duncan Miller, $12,500.00; Harry E. Figgie,
Jr., $12,500.00; O.K. Dealey, Jr., $25,000.00; and Robert J. Ruben, $25,000.00.
Compliance with Section 16 (a) of the Securities Exchange Act of 1934
Section 16 (a) of the Securities Act of 1934 requires all Company
executive officers and directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of their
ownership with the Securities and Exchange Commission. Executive officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16 (a) reports they
file. Specific due dates for these reports have been established and the Company
is required to report any delinquent filings and failures to file such reports.
41
Base solely on its review of the copies of such reports received by it
and written representations of its executive officers and incumbent directors,
the Company believes that during the year ended December 31, 2003, all filing
requirements under Section 16 (a) applicable to its executive officers,
directors and greater than ten percent beneficial owners were complied with.
The Board of Directors has determined that James O'Brien is the Audit
Committee financial expert for the Company and he qualifies as a independent
Director.
The Sarbanes-Oxley Act and related rules adopted by the SEC require
publicly traded companies to disclose whether they have adopted a code of ethics
that applies to a company's principal executive officer, principal financial
officer and principal accounting officer or controller, or persons performing
similar functions. The rules also define what constitutes a code of ethics. The
Company will provide to any person without charge, upon request, a copy of its
code of ethics. To receive a copy of the Company's code of ethics, requests
should be sent to:
Trans-Industries, Inc
Attn: Chief Financial Officer
2637 South Adams Road
Rochester Hills, MI. 48309
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Account Fees and Services
The information called for by Part III (Items 11, 12, 13 and 14, and
additional information regarding Item 10), is incorporated by reference from the
Registrant's definitive proxy statement in connection with its Annual Meeting of
Shareholders to be held on June 16, 2004, which Proxy Statement will be filed
pursuant to Regulation 14A.
42
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1, 2. Consolidated Financial Statements for Trans-Industries, Inc. and
Subsidiaries for years ended December 31, 2003, 2002, and 2001 are
filed under Part II, Item 8.
3. Exhibits:
Exhibit 3 (a) Restated Certificate of Incorporation incorporated
herein by reference to Form 8 filed May 17, 1982.
Exhibit 3(b) Bylaws
Exhibit 13(b) Form 10-Q for quarter ended September 30, 2003, filed
with the Securities and Exchange Commission on November
19, 2003 incorporated herein by reference.
Exhibit 21 List of Subsidiaries
Exhibit 31.1 Sarbanes-Oxley, Section 302 CEO certification.
Exhibit 31.2 Sarbanes-Oxley, Section 302 CFO certification.
Exhibit 32 Sarbanes-Oxley, Section 906 certification.
(b) No reports on Form 8-K for the three months ended December 31, 2003
were required to be filed.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TRANS-INDUSTRIES, INC.
Date: 4/14/04 /s/ Dale S. Coenen
-----------------------------------
Dale S. Coenen
Chairman of the Board of
Directors and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, which include the
Chairman, the President, the Chief Financial Officer, the Assistant Treasurer,
and a majority of the Board of Directors on behalf of the Registrant and in the
capacities and on the dates indicated:
/s/ Dale S. Coenen Chairman 4/14/04
- -----------------------------------------------
(Dale S. Coenen)
/s/ Kai Kosanke Vice-President 4/14/04
- ----------------------------------------------- and Chief Financial Officer
(Kai Kosanke)
/s/ Keith LaCombe Assistant Treasurer 4/14/04
- -----------------------------------------------
(Keith LaCombe)
/s/ Richard A. Solon Director 4/14/04
- -----------------------------------------------
(Richard A. Solon)
/s/ O.K. Dealey, Jr. Director 4/14/04
- -----------------------------------------------
(O.K. Dealey, Jr.)
/s/ Robert J. Ruben Director 4/14/04
- -----------------------------------------------
(Robert J. Ruben)
44
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
Exhibit 3 (a) Restated Certificate of Incorporation incorporated
herein by reference to Form 8 filed May 17, 1982.
Exhibit 3(b) Bylaws
Exhibit 13(b) Form 10-Q for quarter ended September 30, 2003, filed
with the Securities and Exchange Commission on November
19, 2003 incorporated herein by reference.
Exhibit 21 List of Subsidiaries.
Exhibit 31.1 Sarbanes-Oxley, Section 302 CEO certification.
Exhibit 31.2 Sarbanes-Oxley, Section 302 CFO certification.
Exhibit 32 Sarbanes-Oxley, Section 906 certification.