**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

 

## **FORM 10-Q**

 

 

| **ý** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**                                                                          |
|------------|---------------------------------------------------------------------------------------------------------------------------------------|
|       | **SECURITIES  EXCHANGE ACT OF 1934**                                                                                                  |
|       |                                                                                                                                  |
|       | **For the quarterly period ended March 31, 2002**                                                                                     |
|       |                                                                                                                                  |
|       | **OR**                                                                                                                                |
|       |                                                                                                                                  |
| **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**                                                                         |
|       | **SECURITIES  EXCHANGE ACT OF 1934**                                                                                                  |
|       |                                                                                                                                  |
|       | **For the transition period  from        to        ** |
|       |                                                                                                                                  |
|       | **Commission file number  0-19657**                                                                                         |

 

**TRM CORPORATION**(Exact name ofregistrant as specified in its charter)

 

 

| **Oregon**                                                     |   | **93-0809419**                       |
|----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                                           |   |                                 |
| **5208  N.E. 122nd Avenue**                                    |   |                                 |
| **Portland, Oregon**                                           |   | **97230**                            |
| (Address of principal executive offices)                       |   | (Zip  Code)                          |

 

 

**(503) 257-8766**(Registrant’stelephone number, including area code)

 

 

(Former name, former address andformer fiscal year, if changed since last report)

 

                Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

 

YES ý  NO o

 

                Indicate the number of shares outstandingof each of the issuer’s classes of common stock, as of the latest practicabledate:

 

| **CLASS**    |   | **OUTSTANDING AT MARCH 31, 2002** |   |
|--------------|--------|-----------------------------------|--------|
| Common Stock |   | 7,059,790                         |   |

 

1

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**PART I -FINANCIAL INFORMATION**

 

**ITEM 1.          FINANCIAL STATEMENTS**

 

**TRMCORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(In thousands)**

 
|                                                                                              |   | **December 31,****2001** |   | **March 31,****2002** |   |
|---------------------------------------------------------------------------------------------------|--------|--------------------------|--------|-----------------------|--------|
|                                                                                              |   |                     |   | **(unaudited)**       |   |
| ASSETS                                                                                            |   |                     |   |                  |   |
| Current assets:                                                                                   |   |                     |   |                  |   |
| Cash and cash equivalents                                                                         |   | $                        | 1,598  |                  | $      | 1,073 |   |
| Accounts receivable, net                                                                          |   | 6,432                    |   | 7,248                 |   |
| Income tax receivable                                                                             |   | 269                      |   | 209                   |   |
| Inventories                                                                                       |   | 2,243                    |   | 2,450                 |   |
| Prepaid expenses and other                                                                        |   | 1,341                    |   | 1,485                 |   |
| Deferred income taxes                                                                             |   | 270                      |   | 270                   |   |
| Total current assets                                                                              |   | 12,153                   |   | 12,735                |   |
| Equipment and vehicles, less accumulated depreciation                                             |   | 71,273                   |   | 69,377                |   |
| Goodwill, less accumulated depreciation                                                           |   | 2,353                    |   | —                |   |
| Intangible assets, less accumulated depreciation                                                  |   | 2,196                    |   | 1,385                 |   |
| Other assets                                                                                      |   | 720                      |   | 743                   |   |
|                                                                                              |   | $                        | 88,695 |                  | $      | 84,240 |   |
|                                                                                              |   |                     |   |                  |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                        |   |                     |   |                  |   |
|                                                                                              |   |                     |   |                  |   |
| Current liabilities:                                                                              |   |                     |   |                  |   |
| Accounts payable                                                                                  |   | $                        | 6,057  |                  | $      | 5,910 |   |
| Accrued expenses                                                                                  |   | 7,861                    |   | 7,178                 |   |
| Current portion of Long-term debt                                                                 |   | 977                      |   | 1,737                 |   |
| Total current liabilities                                                                         |   | 14,895                   |   | 14,825                |   |
| Long-term debt                                                                                    |   | 20,552                   |   | 20,238                |   |
| Deferred tax liability                                                                            |   | 2,295                    |   | 2,199                 |   |
| Other long-term liabilities                                                                       |   | 179                      |   | 166                   |   |
| Preferred dividends payable                                                                       |   | 1,877                    |   | 2,252                 |   |
| Total liabilities                                                                                 |   | 39,798                   |   | 39,680                |   |
|                                                                                              |   |                     |   |                  |   |
| Minority Interest                                                                                 |   | $                        | 3,565  |                  | $      | — |   |
|                                                                                              |   |                     |   |                  |   |
| Shareholders’ equity:                                                                        |   |                     |   |                  |   |
| Preferred stock, no par value.  Authorized5,000 shares;  1,778 shares issuedand  outstanding |   | $                        | 19,798 |                  | $      | 19,798 |   |
| Common stock, no par value.  50,000 authorized;7,060 shares  issued andoutstanding           |   | 19,026                   |   | 19,026                |   |
| Additional paid-in capital                                                                        |   | 13                       |   | 24                    |   |
| Accumulated other comprehensive income                                                            |   | (2,957                   | )      | (3,028                | )      |
| Retained earnings                                                                                 |   | 9,452                    |   | 8,740                 |   |
| Total shareholders’ equity                                                                   |   | 45,332                   |   | 44,560                |   |
|                                                                                              |   | $                        | 88,695 |                  | $      | 84,240 |   |

 

See accompanying notes to consolidated financial statements.

 

 

2

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**TRM CORPORATION**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

**(In thousands, except per share data)**

 
|                                                      |   | **Three Months Ended****March 31,** |   |
|-----------------------------------------------------------|--------|-------------------------------------|--------|
|                                                      |   | **2001**                            |   | **2002** |   |
| Sales                                                     |   | $                                   | 18,856 |   | $ | 20,616 |   |
| Less discounts                                            |   | 2,993                               |   | 3,495 |   |
| Net sales                                                 |   | 15,863                              |   | 17,121 |   |
| Cost of sales                                             |   | 9,753                               |   | 9,919 |   |
| Gross profit                                              |   | 6,110                               |   | 7,202 |   |
| Selling, general and administrative expense               |   | 7,449                               |   | 7,337 |   |
| Operating loss                                            |   | (1,339                              | )      | (135 | ) |
| Other (income) expense:                                   |   |                                |   |   |   |
| Interest                                                  |   | 715                                 |   | 444 |   |
| Other, net                                                |   | (960                                | )      | (44 | ) |
| Loss before Minority interest                             |   | (1,094                              | )      | (535 | ) |
| Minority interest in Earnings of Consolidated  Subsidiary |   | 289                                 |   | 72 |   |
| Loss before Income Taxes                                  |   | (805                                | )      | (463 | ) |
| Benefit for income taxes                                  |   | (17                                 | )      | (126 | ) |
| Net loss                                                  |   | $                                   | (788   | ) | $ | (337 | ) |
|                                                      |   |                                |   |   |   |
| Earnings per share computation:                           |   |                                |   |   |   |
| Net loss                                                  |   | $                                   | (788   | ) | $ | (337 | ) |
| Preferred stock dividends                                 |   | (370                                | )      | (375 | ) |
| Net loss available to common Shareholders                 |   | $                                   | (1,158 | ) | $ | (712 | ) |
| Basic net loss per share:                                 |   |                                |   |   |   |
| Shares outstanding                                        |   | 7,063                               |   | 7,060 |   |
| Net loss per share                                        |   | $                                   | (.16   | ) | $ | (.10 | ) |
| Diluted net loss per share:                               |   |                                |   |   |   |
| Shares outstanding                                        |   | 7,063                               |   | 7,060 |   |
| Net loss per share                                        |   | $                                   | (.16   | ) | $ | (.10 | ) |

 

See accompanying notes to consolidated financial statements.

 

 

3

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**TRM CORPORATION**

 

**CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY**

**(unaudited)**

**(In thousands)**

 

 
|                                     |   | **Comprehensive** |   | **Preferred** |   | **Common**  |   | **Additional  Paid-in** |   | **Accumulated  Other Comprehensive** |   | **Retained** |   |               |   |
|------------------------------------------|--------|-------------------|--------|---------------|--------|-------------|--------|-------------------------|--------|--------------------------------------|--------|--------------|--------|--------------------|--------|
|                                     |   | **Income**        |   | **Shares**    |   | **Amounts** |   | **Shares**              |   | **Amounts**                          |   | **Capital**  |   | **Income  (Loss)** |   | **Earnings** |   | **Total** |   |
| **Balances,  December 31, 2001**    |   |              |   | 1,778         |   | $           | 19,798 |                    | 7,060  |                                 | $      | 19,026       |   | $                  | 13     |   | $ | (2,957 | ) | $ | 9,452 |   | $ | 45,332 |   |
| Comprehensive income                     |   |              |   |          |   |        |   |                    |   |                                 |   |         |   |               |   |   |   |   |   |
| Net loss                                 |   | $                 | (337   | )             | — |        | — |                    | — |                                 | — |         | — |               | — |   | (337 | ) | (337 | ) |
| Other comprehensive income, net of tax   |   |              |   |          |   |        |   |                    |   |                                 |   |         |   |               |   |   |   |   |   |
| Foreign  currency translation adjustment |   | (71               | )      | —        |   | —      |   | —                  |   | —                               |   | —       |   | (71                | )      | — |   | (71 | ) |
| Comprehensive income (loss)              |   | $                 | (408   | )             | — |        | — |                    | — |                                 | — |         | — |               | — |   | — |   | — |   |
| Modification of stock options            |   |              |   |          |   |        |   |                    |   |                                 |   | 11           |   |               |   |   |   | 11 |   |
| Preferred stock dividends                |   |              |   | —        |   | —      |   | —                  |   | —                               |   | —       |   | ——       |   | (375 | ) | (375 | ) |
| **Balances,  March 31, 2002**       |   |              |   | 1,778         |   | $           | 19,798 |                    | 7,060  |                                 | $      | 19,026       |   | $                  | 24     |   | $ | (3,028 | ) | $ | 8,740 |   | $ | 44,560 |   |

 

See accompanying notes to consolidated financial statements.

 

 

4

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**TRM CORPORATION**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

**(In thousands)**

 
|                                                                                       |   | **Three Months Ended****March 31,** |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                       |   | **2001**                            |   | **2002** |   |
| Operating activities:                                                                      |   |                                |   |   |   |
| Net loss                                                                                   |   | $                                   | (788   | ) | $ | (337 | ) |
| Adjustments to reconcile net loss to net cash provided  (used in) by operating activities: |   |                                |   |   |   |
| Depreciation and amortization                                                              |   | 2,286                               |   | 2,442 |   |
| Minority Interest in earnings of consolidated  subsidiary                                  |   | (289                                | )      | (72 | ) |
| Other                                                                                      |   | (76                                 | )      | (12 | ) |
| Loss (Gain) on disposal of equipment  and vehicles                                    |   | 31                                  |   | 82 |   |
| Non-cash stock compensation                                                                |   |                                |   | 11 |   |
| Changes in items affecting operations:                                                     |   |                                |   |   |   |
| Accounts receivable                                                                        |   | 979                                 |   | (815 | ) |
| Inventories                                                                                |   | 328                                 |   | (207 | ) |
| Income tax receivable                                                                      |   | 0                                   |   | 60 |   |
| Prepaid expenses and other                                                                 |   | 18                                  |   | (150 | ) |
| Accounts payable                                                                           |   | (1,642                              | )      | (147 | ) |
| Accrued expenses                                                                           |   | (432                                | )      | (682 | ) |
| Deferred income tax                                                                        |   | (104                                | )      | (96 | ) |
| Cash provided by operating activities                                                      |   | 311                                 |   | 77 |   |
| Cash flows from investing activities:                                                      |   |                                |   |   |   |
| Proceeds from sale of equipment                                                            |   | 206                                 |   | 81 |   |
| Capital expenditures                                                                       |   | (889                                | )      | (1,036 | ) |
| Other                                                                                      |   | (69                                 | )      | (77 | ) |
| Cash used in investing activities                                                          |   | (752                                | )      | (1,032 | ) |
| Cash flows from financing activities:                                                      |   |                                |   |   |   |
| Net borrowings on notes payable                                                            |   | (861                                | )      | 456 |   |
| Other long-term liabilities                                                                |   | (12                                 | )      | (10 | ) |
| Purchase of minority interest                                                              |   | —                              |   | (60 | ) |
| Cash provided by (used in) financing activities                                            |   | (873                                | )      | 386 |   |
| Effect of exchange rate changes                                                            |   | (22                                 | )      | 44 |   |
| Net decrease in cash and cash equivalents                                                  |   | (1,336                              | )      | (525 | ) |
| Cash and cash equivalents at beginning of period                                           |   | 6,012                               |   | 1,598 |   |
| Cash and cash equivalents at end of period                                                 |   | $                                   | 4,676  |   | $ | 1,073 |   |
|                                                                                       |   |                                |   |   |   |
| Disposal of iATMglobal.net:                                                                |   |                                |   |   |   |
| Intangible assets                                                                          |   |                                |   | $ | (3,076 | ) |
| Fixed assets                                                                               |   |                                |   | (69 | ) |
| Prepaid assets                                                                             |   |                                |   | (3 | ) |
| Accrued expenses                                                                           |   |                                |   | 203 |   |
| Net assets eliminated in disposal of iATMglobal.net                                        |   |                                |   | $ | (2,945 | ) |

 

See accompanying notes to consolidated financial statements.

 

5

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**TRM CORPORATION**

 

**Notes to Condensed Consolidated Financial Statements(unaudited)**

 

 

1.           Interim FinancialData:

 

                                         The condensedfinancial statements included herein have been prepared by the Company, withoutaudit, pursuant to the rules and regulations of the Securities and ExchangeCommission and reflect all adjustments, consisting only of normal recurringadjustments, which, in the opinion of management, are necessary for a fairstatement of the results of the interim periods.  These condensed interim financial data should be read inconjunction with the Company’s latest annual report to shareholders.

 

2.           Net Loss Per Share:

 

                                         Basic and diluted net loss per share arebased on the weighted average number of common shares outstanding during eachperiod, with diluted including the effect of potentially dilutivesecurities.  For the three months endedMarch 31, 2001 and 2002, the weighted average number of common shares for basicnet income per share computations were 7,063,000 and 7,060,000, respectively.In calculating basic net income (loss) per share, dividends for preferred stockare deducted to arrive at income (loss) available for common stockholders.  For diluted net income (loss) per share, thecalculation assumes the conversion of common stock equivalents including theconversion of preferred stock to common unless such conversion isanti-dilutive.  For the three months endedMarch 31, 2002 and 2001, no shares were added to the weighted average sharesoutstanding because the addition of shares would be anti-dilutive.

 

3.           Inventories (inthousands):

 
|                |   | **December 31,****2001** |   | **March 31,  2002** |   |
|---------------------|--------|--------------------------|--------|---------------------|--------|
| Paper               |   | $                        | 282    |                | $      | 204 |   |
| Toner and developer |   | 159                      |   | 146                 |   |
| Parts               |   | 1,802                    |   | 2,100               |   |
|                |   |                     |   |                |   |
|                |   | $                        | 2,243  |                | $      | 2,450 |   |

 

4.                                Segment Reporting(in thousands):

 

                TheCompany has three reportable segments: Photocopy, ATM, and e-commerce. Photocopy owns and maintains self-service photocopiers in retailestablishments.  ATM owns and operates ATMmachines in retail establishments.  Thee-commerce business develops software to deliver products and services throughATMs.

 

                Theaccounting policies of the segments are substantially the same as thosedescribed in Note 1.  The Companyevaluates each segment’s performance based on income or loss before interestand income taxes, excluding non-recurring charges.  Information regarding the operations of these reportable segmentsis as follows:

 

6

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|                                                     |   | **Three Months Ended** |       |
|----------------------------------------------------------|--------|------------------------|------------|
|                                                     |   | **March 31,   2001**   |       | **March 31,   2002** |   |
| Sales                                                    |   |                   |       |   |   |
| Photocopy                                                |   | $                      | 14,920     |   | $ | 14,245 |   |
| ATM                                                      |   | 3,678                  |       | 5,733 |   |
| e-Commerce                                               |   | 258                    |       | 638 |   |
|                                                     |   | $                      | 18,856     |   | $ | 20,616 |   |
|                                                     |   |                   |       |   |   |
| Depreciation and  Amortization:                          |   |                   |       |   |   |
| Photocopy                                                |   | $                      | 1,728      |   | $ | 1,604 |   |
| ATM                                                      |   | 452                    |       | 782 |   |
| e-Commerce                                               |   | 105                    |       | 56 |   |
|                                                     |   | $                      | 2,285      |   | $ | 2,442 |   |
|                                                     |   |                   |       |   |   |
| Income (Loss) Before  Interest, taxes, minority interest |   |                   | ** ** |   | ** ** |
| Photocopy                                                |   | $                      | 1,171      |   | $ | 1,388 |   |
| ATM                                                      |   | (593                   | )          | (1,399 | ) |
| e-commerce                                               |   | (957                   | )          | (80 | ) |
|                                                     |   | $                      | (379)      |   | $ | (91 | ) |

 

                TRM disposed ofits interest in iATMglobal.net via a reorganization agreement completed onFebruary 14, 2002.  iATMglobal.netcomprised a substantial portion of the e-commerce segment of the Company.

 

                TRMCorporation formed S-3 Corporation, a new wholly owned subsidiary into whichTRM contributed all the issued and outstanding shares of common stock ofiATMglobal.net.  iATMglobal.netrepurchased all of its issued and outstanding common shares from S-3Corporation and, in consideration for the purchase price iATM transferred to S-3all of the shares of common stock of Strategic Software Solutions (“SSS”), awholly owned subsidiary of iATMglobal.net, and the remaining $47,000 cash ofiATMglobal.net after reserves for agreed upon liabilities.  S-3 Corporation retained ownership of StrategicSoftware Solutions, and certain license agreements to develop and deploy RAAP(Remote Access Application Protocol) Software in the United Kingdom exclusivelyfor two years.  RAAP allows existingInternet e-commerce companies to offer their products and services to customersthrough the ATM.

 

                NCRCorporation, the sole owner of iATM’s Series A voting Preferred Stock convertedthe Series A Preferred Shares of iATM into common stock as part of thereorganization, making it the sole shareholder of iATM.  NCR retained the following key assets ofiATM: the remaining goodwill related to RAAP ($2.4 million at December 31,2001), RAAP Software and its related patent, rights to deploy RAAP and certaine-commerce content partners.

 

                TRMCorporation recognized its investment in S-3 using the historical basis of$326,000 for the net assets of Strategic Software Solutions which wassubstantially equal to TRM Corporation’s net investment in iATM as of theclosing date of the reorganization. The net assets retained 

 

 

7

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were $468,000 resulting in a deferred credit of $142,000 which was usedto reduce the carrying value of the net fixed assets retained by S-3.

 

5.             NewAccounting Standards:

 

In June 2001, theFinancial Accounting Standards Board (FASB or the “Board”) issued Statement ofFinancial Accounting Standards No. 141 (SFAS 141), Business Combinations, andNo. 142 (SFAS 142), Goodwill and Other Intangible Assets, collectivelyreferred to as the “Standards”.  SFAS141 supersedes Accounting Principles Board Opinion (APB) No. 16, BusinessCombination.  The provisions of SFAS 141(1) require that the purchase method of accounting be used for all businesscombinations initiated after June 30, 2001, (2) provide specific criteria forthe initial recognition and measurement of intangible assets apart fromgoodwill, and (3) require that unamortized negative goodwill be written offimmediately as an extraordinary gain instead of being deferred and amortized.  SFAS 141 also requires that upon adoption ofSFAS 142 the Company reclassify the carrying amounts of certain intangibleassets into or out of goodwill, based on certain criteria. SFAS 142 supersedesAPB 17, Intangible Assets, and is effective for fiscal years beginning afterDecember 15, 2001.  SFAS 142 primarilyaddresses the accounting for goodwill and intangible assets subsequent to theirinitial recognition.  The provisions ofSFAS 142 prohibit the amortization of goodwill and indefinite-lived intangibleassets, and require that goodwill and indefinite-lived intangibles assets betested annually for impairment.

 

The Company has adoptedthe provisions of SFAS 141 and SFAS 142 in its first quarter ended March 31,2002.  As a result of the Companydisposing of its interest in iATMglobal.net in February 2002, the goodwill andindefinite-lived intangibles recognized as of December 31, 2001 were eliminatedfrom the Company’s consolidated financial statements.  The Company will no longer record $280,000 of annual amortizationrelating to goodwill and indefinite-lived intangibles.  The Company has evaluated the useful livesof its existing other intangible assets which consist primarily of customercontracts and trademarks and does not anticipate changes in the useful lives ofits contracts and trademarks.

 

8

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The following tablepresents the gross amount, accumulated amortization, and net carrying amountsof the Company’s intangible assets as of December 31, 2001 and March 31, 2002.  Intangible assets have been categorized bymajor asset class in accordance with SFAS 142:

 

 
|                  |   | **December 31, 2001********(in thousands)**        |   |                         |   | **March 31, 2002********(in thousands)**          |   |
|-----------------------|--------|----------------------------------------------------|--------|------------------------------|--------|---------------------------------------------------|--------|
|                  |   |                                               |   |                         |   |                                              |   |
|                  |   | **Intangible  Assets Not Subject to Amortization** |   |                         |   | **Intangible Assets Not Subject to Amortization** |   |
|                  |   |                                               |   |                         |   |                                              |   |   |   |   |   |   |   |   |   |
|                  |   | **Gross**                                          |   | **Accumulated Amortization** |   | **Net**                                           |   |   |   | **Gross** |   | **Accumulated Amortization** |   | **Net** |   |
| Goodwill              |   | $                                                  | 2,809  |                         | $      | (456                                              | )      | $ | 2,353 |   | Goodwill |   | $ | — |   | $ | — |   | $ | — |   |
| Trademarks            |   | 92                                                 |   | (20                          | )      | 72                                                |   | Trademarks |   | 72 |   | 0 |   | 72 |   |
| Capitalized  Software |   | 721                                                |   | —                       |   | 721                                               |   | Capitalized Software |   | — |   | — |   | — |   |
| Total                 |   | $                                                  | 3,622  |                         | $      | (476                                              | )      | $ | 3,146 |   | Total |   | $ | 72 |   | $ | 0 |   | $ | 72 |   |

 
|                                       |   | **Intangible  Assets Subject to Amortization** |   |                          |   | **Intangible  Assets Subject to Amortization** |   |
|--------------------------------------------|--------|------------------------------------------------|--------|-------------------------------|--------|------------------------------------------------|--------|
|                                       |   |                                           |   |                          |   |                                           |   |   |   |   |   |   |   |   |   |
|                                       |   | **Gross**                                      |   | **Accumulated  Amortization** |   | **Net**                                        |   |   |   | **Gross** |   | **Accumulated  Amortization** |   | **Net** |   |
| Contracts                                  |   | $                                              | 2,129  |                          | $      | (726                                           | )      | $ | 1,403 |   | Contracts |   | $ | 2,129 |   | $ | (816 | ) | $ | 1,313 |   |
|                                       |   |                                           |   |                          |   |                                           |   |   |   |   |   |   |   |   |   |
| Total Intangible Assets                    |   | $                                              | 5,809  |                          | $      | (1,260                                         | )      | $ | 4,549 |   | Total Intangible Assets |   | $ | 2,201 |   | $ | (816 | ) | $ | 1,385 |   |
|                                       |   |                                           |   |                          |   |                                           |   |   |   |   |   |   |   |   |   |
| Weighted   Average   Amortization   Period |   | 76 mos.                                        |   |                          |   |                                           |   | Weighted   AverageAmortization   Period |   | 76 mos. |   |   |   |   |   |

 

 

The following tablepresents the amount of intangible asset amortization expense recorded for theperiods ending March 31, 2001 and 2002:

 

 

|       |   | **March 31,****2001** |   | **March 31,****2002** |   |
|------------|--------|-----------------------|--------|-----------------------|--------|
|       |   |                  |   |                  |   |
| Goodwill   |   | $                     | 70     |                  | 0      |   |
| Trademarks |   | 2                     |   | 0                     |   |
| Contracts  |   | 85                    |   | 88                    |   |
|       |   | $                     | 157    |                  | $      | 88 |   |
|            |        |                       |        |                       |        |  |  |

 

9

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The following tablepresents the estimated amount of intangible asset related amortization expenseto be recorded for the 9 months remaining in 2002 and the for each of the next5 years:

 

 

| 2002 (Remaining 9 months) |   | $   | 265    |   |
|---------------------------|--------|-----|--------|--------|
| 2003                      |   | 224 |   |
| 2004                      |   | 224 |   |
| 2005                      |   | 224 |   |
| 2006                      |   | 224 |   |
| 2007                      |   | 224 |   |
|                      |   | $   | 1,385  |   |

 

In August of 2001, FASBissued Statement No. 144, Accounting for the Impairment or Disposal ofLong-Lived Assets. FASB issued Statement No. 144 is effective for fiscal yearsbeginning after December 15, 2001.  Thisstatement supersedes FASB Statement No. 121, Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of, and theaccounting and reporting provisions of APB Opinion No. 30, Reporting theResults of Operations - Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual, and Infrequently Occurring Events andTransactions, for the disposal of a segment of a business.  FASB Statement No. 121 did not address theaccounting for a segment of a business accounted for as a discontinuedoperation under APB Opinion No. 30, accordingly two accounting models existedfor long-lived assets to be disposed of. FASB Statement No. 144 establishes asingle accounting model, based on the framework established in Statement No.121 for long-lived assets to be disposed of by sale.  In addition, FASB Statement No. 144 resolves significantimplementation issues related to Statement No. 121.  The Company adopted the pronouncement as of January 1, 2002 andit has not had a material effect on the Company’s consolidated financialstatements.

 

 

10

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**ITEM2.          MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL**

**                        CONDITION AND RESULTSOF OPERATIONS**

 

General

 

As of March 31, 2002 the Company had a total of 2,448ATM operating units installed, with 975 and 1,473 deployed in the United Statesand United Kingdom respectively, as compared to 1,740  total units installed at March 31, 2001, an increase of 708units, most of which occurred in the United Kingdom.  The ATM business contributed $5.7 million to quarterly grossrevenues, a 55.9% increase over the same period last year.  The Company believes that revenues generatedfrom services delivered through its ATM network will become an increasinglyhigher percentage of its overall revenue in the future.

In the first quarter of 2001, the CopyCentersbusiness, conducted a consolidation of its United States service areas in orderto achieve greater operational efficiencies. The United Kingdom reorganized its service areas in the first quarter of2002 to incorporate its 15 service centers into 6 newly organized regionalservice areas.  The service areas theCompany operates in now include 30 in the United States, 5 in Canada, and 6 inthe United Kingdom. In addition, third party service providers support theCompany’s customers in 198 additional locations in the United States andCanada.  As of March 31, 2002, theCompany had 29,163 TRM CopyCenters installed compared to 32,241 at March 31,2001. The decrease of 3,078 total CopyCenters is due to the sale of theCompany’s French operations in the fourth quarter of 2001, and elimination oflow volume locations in the Company’s other markets.  The CopyCenters revenue remained the largest revenue stream at$14.2 million in the first quarter 2002 as compared to $14.9 million for thesame period in 2001.

 

                TRM disposed ofits interest in iATMglobal.net via a reorganization agreement completed onFebruary 14, 2002.  iATMglobal.netcomprised a substantial portion of the e-commerce segment of the Company.

 

                As part of thereorganization, TRM Corporation formed S-3 Corporation, a new wholly ownedsubsidiary into which TRM contributed all the issued and outstanding shares ofcommon stock of iATMglobal.net. iATMglobal.net repurchased all of its issued and outstanding commonshares from S-3 Corporation and, in consideration for the purchase priceiATMglobal.net transferred to S-3 all of the shares of common stock ofStrategic Software Solutions (“SSS”), a wholly owned subsidiary of iATMglobal.net,and the remaining $47,000 cash of iATMglobal.net after reserves for agreed uponliabilities.  S-3 Corporation retainedownership of Strategic Software Solutions, and certain license agreements todevelop and deploy RAAP (Remote Access Application Protocol) Software in theUnited Kingdom exclusively for two years. RAAP allows existing Internet e-commerce companies to offer theirproducts and services to customers through the ATM.  As a result of the reorganization, the Company no longer has an ownershipposition in iATMglobal.net.  TheCompany’s e-commerce business generated gross revenues of $638,000 for thefirst quarter of 2002 as compared to $258,000 for the same period in 2001, themajority of which relates to the operations of SSS.

 

 

11

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###### Results of Operations

 

                Thefollowing table sets forth, for the three months ended March 31, 2001 and 2002,selected statement of operations data, expressed as a percentage of sales, andthe percentage change in dollar amounts of each item on the ConsolidatedStatements of Operations (see page 3 of this Form 10-Q).

 
|                                 |   | **Percentage Change**   |   | **As a Percentage of Sales** |   |
|--------------------------------------|--------|-------------------------|--------|------------------------------|--------|
|                                 |   | **Increase (Decrease)** |   | **2001**                     |   | **2002** |   |
| Sales                                |   | 9.3                     | %      | 100.0                        | %      | 100.0 | % |
| Sales discounts                      |   | 16.8                    |   | 15.9                         |   | 17.0 |   |
| Cost of sales                        |   | 1.7                     |   | 51.7                         |   | 48.1 |   |
| Selling, general and  administrative |   | (1.5                    | )      | 39.5                         |   | 35.6 |   |
| Operating loss                       |   | (89.9                   | )      | (7.1                         | )      | (0.7 | ) |
| Interest expense, net                |   | (38.0                   | )      | 3.8                          |   | 2.2 |   |
| Other income net                     |   | (95.4                   | )      | (5.1                         | )      | (0.2 | ) |
| Loss before income  taxes            |   | (42.5                   | )      | (4.3                         | )      | (2.2 | ) |
| Benefit for income  taxes            |   | 641.2                   |   | (0.1                         | )      | (0.6 | ) |
| Net loss                             |   | (57.2                   | )%     | (4.2                         | )%     | (1.6 | )% |

 

Three Months endedMarch 31, 2002 Compared to Three Months ended March 31, 2001 

 

For the quarter ended March 31, 2002, consolidatedsales increased by $1.8 million (9.3%) to $20.6 million from $18.9 million for2001.  Revenues from the Company’sexpanding ATM business drove the revenue increase and contributed $5.7 millionof the totals for the quarter, up $2.0 million from the same period lastyear.  CopyCenter revenue was $14.2million for the quarter.  e-Commercecontributed $638,000 of revenue for the quarter.

 

CopyCenters sales were down $672,000 or 4.5% for thequarter ended March 31, 2002 as compared to the same period in 2001.  The decrease is primarily due to the sale ofthe French operation in October 2001. In the first quarter 2001 the French operation had contributed $627,000of revenue and had generated a net loss of $107,000 which was not realized inthe same period 2002. The balance of the CopyCenters sales decline reflects theelimination of low volume locations.

 

Revenues from the Company’s ATM business were $5.7million during the first quarter of 2002 as compared to $3.7 million 2001, anincrease of 55.9%.  This revenueincrease is attributable to the expanded number of installed ATM operatingunits, which increased by 708 units over the first quarter of 2001.

 

Sales discounts are the portion of revenue retained byretail customers.  Sales discountsgenerally vary at individual retail businesses depending on volume — the higherthe volume, the greater the discount, and are typically smaller in the ATMbusiness.  Sales discounts in the ATMbusiness increased from $335,000 for the quarter ended March 31, 2001 to$871,000 for the same period in 2002, an increase of 160%. The increaseresulted from a 10% increase in transaction volumes per ATM machine on aconsolidated basis.  The largestincrease in transaction volumes per machine occurred in the United Kingdom,with an increase of 18%.

 

Costs of sales on a consolidated basis increased$166,000 (1.7%) for the quarter ended March 31, 2002 compared to 2001 but fellas a percentage of revenue from 51.7% to 48.1%.  The increase of 

 

12

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$166,000 is primarily related to increased machine depreciationresulting from growth in the ATM business.

 

Selling, general and administrative expenses decreased$112,000 (1.5%) during the quarter ended March 31, 2002 compared to 2001 andfell as a percentage of revenue from 39.5% in 2001 as compared to 35.6% in2002.  The decrease is a result ofdecreased labor cost associated with the reorganization of the e-commercebusiness which reduced its selling, general, and administrative expenses from$1.2 million in the first quarter of 2001 to $489,000 in the same quarter 2002.This reduction was partially offset by increases in labor costs required tosupport growth in the United Kingdom.

 

During the quarter ended March 31, 2002, interestexpense decreased to $444,000 from $715,000 in 2001.  The decrease was primarily due to a reduction in borrowings underthe Company’s revolving credit facility to $21.7 million outstanding in 2002from $27.2 million outstanding in 2001.

 

Other income decreased during the quarter ended March31, 2002, compared to 2001, primarily due to a $801,000 contract terminationsettlement with Woolwich, PLC which was included in the first quarter 2001results.  Woolwich provided cashinventory and cash management services for all of the Company’s ATMs located inEngland, Scotland, and Wales during 2000. In addition, Woolwich provided sponsorship into the LINK cash deliverynetwork in the United Kingdom.  Inmid-2000, a change in regulation allowed TRM to be a direct member ofLINK.  As a result of this change, andWoolwich’s desire to exit the surcharging market in the United Kingdom, TRM andWoolwich terminated their relationship effective at the end of March 2001.

 

                The Company’seffective tax rate, excluding e-commerce, for the quarter ended March 31, 2002was 40.3%, resulting from an income tax benefit of $183,000, compared to aneffective tax rate of 39.0% and an income tax benefit of $47,000 for the sameperiod in 2001.  The Company’se-Commerce business recorded losses in the first quarter of 2001 of $973,000but recorded an income tax expense of $30,000 related to profits earned byStrategic Software Solutions, a subsidiary of iATMglobal.net.  In the first quarter of 2002, e-Commercerecorded losses of $9,000 with an income tax expense of $57,000.  The result is a consolidated net tax benefitof $126,000 and $17,000 for the first quarter of 2002 and 2001, respectively.

 

Liquidity and Capital Resources

 

TheCompany was in compliance with all loan covenants at March 31, 2002.  In January 2002, the Company executed anamendment to its loan agreement establishing new covenants for 2002.  Under this amended agreement, the line ofcredit will reduce quarterly to a level of $21.1 million at December 31, 2002and will mature on June 30, 2003.

 

In March 2000, the Company established a financingfacility to access a commercial paper conduit to provide vault cash for itsU.S. ATM network.  The financing wascompleted off the Company’s balance sheet on a non-recourse basis, via aspecial purpose entity in which neither the Company nor any of its affiliateshas an interest.  The cash at all timesremains the property of the special purpose entity, however, the Company doesassume substantially all risk of loss while the cash is in or being distributedto its ATM network.  In April 2002 theCompany renegotiated this facility with an initial limit of $22 million withthe option to increase the limit to $30 million and maturing April 23, 2007.

 

 

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TheCompany’s United Kingdom ATM business obtains vault cash under an agreementwith a local bank.  Vault cash obtainedunder the program remains the property of the bank, however, the Company doesassume substantially all of the risk of loss while the cash is in or being distributedto its ATM network.

 

                During the firstquarter of 2001, the Company generated $77,000 of cash flow from operations,and funded capital expenditures of $ 1.0 million primarily from cash generatedfrom operations.  Capital expenditureswere primarily for ATM machines and photocopy equipment.

 

The Company currentlyanticipates capital expenditures of approximately $9.9 million during 2002,most of the expenditures will be used to acquire ATM and photocopy machines andthe remainder will be used to acquire computer related systems and othercapital items.  The Company had signedan agreement with Konica to purchase 10,000 additional photocopiers in2000.  This agreement was amended to6,700 additional photocopiers, 3,300 and 190 of which were purchased in 2000and 2001 respectively.  The Companyexpects to purchase from Konica approximately 2,200 additional photocopiersduring 2002 at a cost of approximately $2.9 million.  The Company expects to finance these capital expenditures withcash generated from operations.  TheCompany intends to seek longer term financing of its asset base in 2002.

 

A summary of theCompany’s contractual commitments and obligations is as follows:

 

 
|                                |   | **Payments  Due by Period** |   |
|-------------------------------------|--------|-----------------------------|--------|
|                                |   | **Total**                   |   | **Less than  1 year** |   | **1 - 3  years** |   | **4 - 5 years** |   | **After 5  years** |   |
| Contractual obligations             |   |                        |   |   |   |   |   |   |   |   |   |
|                                |   |                        |   |   |   |   |   |   |   |   |   |
| Long-term debt                      |   | $                           | 92     |   | $ | 19 |   | $ | 54 |   | $ | 19 |   | — |   |
| Capital lease  obligations          |   | 117                         |   | 42 |   | 75 |   | — |   | — |   |
| Operating leases                    |   | 10,811                      |   | 2,489 |   | 6,137 |   | 531 |   | 1,654 |   |
| Other long-term  obligations        |   | 2,860                       |   | 2,860 |   | — |   | — |   | — |   |
|                                |   |                        |   |   |   |   |   |   |   |   |   |
| Total  contractual cash obligations |   | $                           | 13,880 |   | $ | 5,410 |   | $ | 6,266 |   | $ | 550 |   | $ | 1,654 |   |
|                                     |        |                             |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                            |   | **Amount of  Commitment Due by Period** |   |
|---------------------------------|--------|-----------------------------------------|--------|
|                            |   | **Total**                               |   | **Less than  1 year** |   | **1 - 3  years** |   | **4 - 5  years** |   | **After 5  years** |   |
| Other Commercial Commitments    |   |                                    |   |   |   |   |   |   |   |   |   |
|                            |   |                                    |   |   |   |   |   |   |   |   |   |
| Lines of credit                 |   | $                                       | 21,055 |   | $ | 965 |   | $ | 20,090 |   | — |   | — |   |
| Standby letters  of credit      |   | 712                                     |   | 712 |   | — |   | — |   |   |   |
| Standby  repurchase obligations |   | —                                  |   | — |   | — |   | — |   | — |   |
| Other commercial  commitments   |   | —                                  |   | — |   | — |   | — |   | — |   |
|                            |   |                                    |   |   |   |   |   |   |   |   |   |
| Total commercial  commitments   |   | $                                       | 21,767 |   | $ | 1,677 |   | $ | 20,090 |   | — |   | — |   |

 

 

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###### Critical Accounting Policies

 

The Company’s critical accounting policies as of March31, 2002 are consistent with those discussed in the Company’s SEC Form 10-K forthe year ended December 31, 2001.

 

New Accounting Standards

 

In June 2001, theFinancial Accounting Standards Board (FASB or the “Board”) issued Statement ofFinancial Accounting Standards No. 141 (SFAS 141), Business Combinations, andNo. 142 (SFAS 142), Goodwill and Other Intangible Assets, collectivelyreferred to as the “Standards”.  SFAS141 supersedes Accounting Principles Board Opinion (APB) No. 16, BusinessCombination.  The provisions of SFAS 141(1) require that the purchase method of accounting be used for all businesscombinations initiated after June 30, 2001, (2) provide specific criteria forthe initial recognition and measurement of intangible assets apart fromgoodwill, and (3) require that unamortized negative goodwill be written offimmediately as an extraordinary gain instead of being deferred andamortized.  SFAS 141 also requires thatupon adoption of SFAS 142 the Company reclassify the carrying amounts ofcertain intangible assets into or out of goodwill, based on certain criteria.SFAS 142 supersedes APB 17, Intangible Assets, and is effective for fiscalyears beginning after December 15, 2001. SFAS 142 primarily addresses the accounting for goodwill and intangibleassets subsequent to their initial recognition.  The provisions of SFAS 142 prohibit the amortization of goodwilland indefinite-lived intangible assets, and require that goodwill andindefinite-lived intangibles assets be tested annually for impairment.

 

The Company has adoptedthe provisions of SFAS 141 and SFAS 142 in its first quarter ended March 31,2002.  As a result of the Companydisposing of its interest in iATMglobal.net in February 2002, the goodwill andindefinite-lived intangibles recognized as of December 31, 2001 were eliminatedfrom the Company’s consolidated financial statements.  The Company will no longer record $280,000 of annual amortizationrelating to goodwill and indefinite-lived intangibles.  The Company has evaluated the useful livesof its existing other intangible assets which consist primarily of customercontracts and trademarks and does not anticipate changes in the useful lives ofits contracts and trademarks.

 

 

15

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The following tablepresents the gross amount, accumulated amortization, and net carrying amountsof the Company’s intangible assets as of December 31, 2001 and March 31,2002.  Intangible assets have beencategorized by major asset class in accordance with SFAS 142:

 
|                  |   | **December 31,  2001********(in thousands)**      |   |                          |   | **March 31, 2002********(in thousands)**          |   |
|-----------------------|--------|---------------------------------------------------|--------|-------------------------------|--------|---------------------------------------------------|--------|
|                  |   |                                              |   |                          |   |                                              |   |
|                  |   | **Intangible Assets Not Subject to Amortization** |   |                          |   | **Intangible Assets Not Subject to Amortization** |   |
|                  |   |                                              |   |                          |   |                                              |   |   |   |   |   |   |   |   |   |
|                  |   | **Gross**                                         |   | **Accumulated  Amortization** |   | **Net**                                           |   |   |   | **Gross** |   | **Accumulated  Amortization** |   | **Net** |   |
| Goodwill              |   | $                                                 | 2,809  |                          | $      | (456                                              | )      | $ | 2,353 |   | Goodwill |   | $ | — |   | $ | — |   | $ | — |   |
| Trademarks            |   | 92                                                |   | (20                           | )      | 72                                                |   | Trademarks |   | 72 |   | 0 |   | 72 |   |
| Capitalized  Software |   | 721                                               |   | —                        |   | 721                                               |   | Capitalized  Software |   | — |   | — |   | — |   |
| Total                 |   | $                                                 | 3,622  |                          | $      | (476                                              | )      | $ | 3,146 |   | Total |   | $ | 72 |   | $ | 0 |   | $ | 72 |   |

 
|                                       |   | **Intangible Assets Subject to Amortization** |   |                         |   | **Intangible Assets Subject to Amortization** |   |
|--------------------------------------------|--------|-----------------------------------------------|--------|------------------------------|--------|-----------------------------------------------|--------|
|                                       |   |                                          |   |                         |   |                                          |   |   |   |   |   |   |   |   |   |
|                                       |   | **Gross**                                     |   | **Accumulated Amortization** |   | **Net**                                       |   |   |   | **Gross** |   | **Accumulated Amortization** |   | **Net** |   |
| Contracts                                  |   | $                                             | 2,129  |                         | $      | (726                                          | )      | $ | 1,403 |   | Contracts |   | $ | 2,129 |   | $ | (816 | ) | $ | 1,313 |   |
|                                       |   |                                          |   |                         |   |                                          |   |   |   |   |   |   |   |   |   |
| Total Intangible Assets                    |   | $                                             | 5,809  |                         | $      | (1,260                                        | )      | $ | 4,549 |   | Total Intangible Assets |   | $ | 2,201 |   | $ | (816 | ) | $ | 1,385 |   |
|                                       |   |                                          |   |                         |   |                                          |   |   |   |   |   |   |   |   |   |
| Weighted   Average   Amortization   Period |   | 76  mos.                                      |   |                         |   |                                          |   | Weighted   AverageAmortization   Period |   | 76  mos. |   |   |   |   |   |

 

 

The following tablepresents the amount of intangible asset amortization expense recorded for theperiods ending March 31, 2001 and 2002:

 

 

|       |   | **March 31,********2001** |   | **March 31,********2002** |   |
|------------|--------|---------------------------|--------|---------------------------|--------|
|       |   |                      |   |                      |   |
| Goodwill   |   | $                         | 70     |                      | 0      |   |
| Trademarks |   | 2                         |   | 0                         |   |
| Contracts  |   | 85                        |   | 88                        |   |
|       |   | $                         | 157    |                      | $      | 88 |   |
|            |        |                           |        |                           |        |  |  |

 

 

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The following tablepresents the estimated amount of intangible asset related amortization expenseto be recorded for the 9 months remaining in 2002 and the for each of the next5 years:

 

 

| 2002 (Remaining 9 months) |   | $   | 265    |   |
|---------------------------|--------|-----|--------|--------|
| 2003                      |   | 224 |   |
| 2004                      |   | 224 |   |
| 2005                      |   | 224 |   |
| 2006                      |   | 224 |   |
| 2007                      |   | 224 |   |
|                      |   | $   | 1,385  |   |

 

In August of 2001, FASBissued Statement No. 144, Accounting for the Impairment or Disposal ofLong-Lived Assets. FASB issued Statement No. 144 is effective for fiscal yearsbeginning after December 15, 2001.  Thisstatement supersedes FASB Statement No. 121, Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of, and theaccounting and reporting provisions of APB Opinion No. 30, Reporting theResults of Operations - Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual, and Infrequently Occurring Events andTransactions, for the disposal of a segment of a business.  FASB Statement No. 121 did not address theaccounting for a segment of a business accounted for as a discontinuedoperation under APB Opinion No. 30, accordingly two accounting models existedfor long-lived assets to be disposed of. FASB Statement No. 144 establishes asingle accounting model, based on the framework established in Statement No.121 for long-lived assets to be disposed of by sale.  In addition, FASB Statement No. 144 resolves significantimplementation issues related to Statement No. 121.  The Company adopted the pronouncement as of January 1, 2002 andit has not had a material effect on the Company’s consolidated financialstatements.

 

 

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#### Forward-LookingStatements 

 

Information in“Management’s Discussion and Analysis,” in this Form 10-Q about the Company’sgoals, plans and expectations regarding expansion, capital expenditures,expanding the ATM business, revenues from the ATM business becoming a higherpercentage of overall revenue, financing of capital expenditures, and obtaininglong-term asset based financing constitutes forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934.  Thefollowing factors that could cause the actual results to differ materially fromthe forward-looking statements: business conditions in the market areas in which the Company operates,competitive factors, customer demand for the Company’s services, the Company’sability to execute its plans in each business segment successfully, the abilityof the Company to successfully negotiate and enter into additional financingarrangements on favorable terms, the Company's ability to expand its currentrelationships with retailers and broaden its distribution network, and thevolatility of paper costs.  Anyforward-looking statements should be considered in light of these factors aswell as risk factors and business conditions discussed in the Company’s Form10-K for the year ended December 31, 2001.

 

**ITEM 3.        QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

####  

                The Company isexposed to minimal market risks. Sensitivity of results of operations to these risks is managed bymaintaining a conservative investment portfolio, which is comprised solely ofmoney market funds, and entering into long-term debt obligations withappropriate price and term characteristics. The Company does not hold or issue derivative commodity instruments orother financial instruments for trading purposes.  Financial instruments held for other than trading purposes do notimpose a material market risk.

 

                The Company isexposed to interest rate risk, as additional financing will be needed due tothe capital expenditures associated with expanding the Company’s businessoperations.  The interest rate that theCompany will be able to obtain on debt financing will depend on marketconditions at that time, and may differ from the rates the Company has securedon its current debt.  Additionally, theCompany is exposed to interest rate risk related to its credit facility as ofMarch 31, 2002.  Advances against thecredit facility periodically renew, at which point the borrowings are subjectto the then current market interest rates, which may differ from the rates theCompany is currently paying on its borrowings.

 

                The Company isexposed to foreign currency exchange rate risk, as it has operations in Canadaand the United Kingdom.  The relativeamount of business transacted in these countries is outlined in footnote 11 tothe Consolidated Financial Statements of the Company’s 2001 Form 10-K.

## ** **

## ** **

## **PART II - OTHERINFORMATION**

 

###### **ITEM 1. ****LEGAL PROCEEDINGS**

 

Mr. Frederick Paulsell, adirector of the Company, and certain members of his family have filed a lawsuitagainst Messrs. Edward Cohen and Daniel G. Cohen, also directors of theCompany, ReadyCash Investment Partners, LP, a significant shareholder of theCompany, and ReadyCash GP, Inc., the general partner of ReadyCash, and others,alleging that the defendants agreed to purchase one million shares of theCompany’s common stock for $13 a share from Mr. Paulsell and his family membersat or around the time of the investment transaction between ReadyCash and theCompany in the spring of 1998.  Mr.Paulsell and his family claim that Messrs. Edward Cohen and Daniel G. Cohenhave breached this alleged agreement and the defendants are liable to Mr.Paulsell and his 

 

 

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family members for damages of at least $12 million forbreach of contract, common law fraud and securities fraud.

 

Messrs. Edward Cohen andDaniel G. Cohen and the other defendants have denied the allegations of Mr.Paulsell and his family members and have filed a counterclaim alleging commonlaw fraud and securities fraud against Mr. Paulsell arising out of (1) Mr.Paulsell’s alleged failure to disclose his alleged agreement to sell his stockto the defendants and (2) Mr. Paulsell’s alleged failure to disclose certain allegedfacts before the closing of the investment in TRM by ReadyCash InvestmentPartners, L.P.  Mr. Paulsell has filed amotion to dismiss the defendants’ counterclaims.  This motion is nowpending before the court.

 

Messrs. Edward Cohen andDaniel G. Cohen, on the one hand, and Mr. Paulsell, on the other hand, haveeach sought indemnification by the Company for any liability arising out of theclaims described above, including the costs of defense, and have requested thatthe Company reimburse them for expenses incurred to date.  The Company has notified its insurancecarrier of these claims, and the insurance carrier’s initial response is thatEdward and Daniel Cohen’s claim would not be covered by the Company’s directorsand officers insurance policy.

 

The Audit Committee ofthe Board of Directors of the Company informed Mr. Paulsell on February 15,2002 that his request for indemnification and reimbursement of expenses waspresently denied by decision of the disinterested members of Company’s Board ofDirectors.

 

The disinterested membersof the Board of Directors of the Company have concluded that Edward and DanielG. Cohen are entitled to reimbursement of defense costs up to $50,000 on aprospective basis.  The Company has yetto reimburse the Cohens for any costs of defending the litigation.

 

On February 22, 2002 theCompany commenced litigation against Mr. Paulsell asserting that if Mr.Paulsell made an agreement as he alleges in his lawsuit against the Cohens andothers such an agreement usurped a corporate opportunity of TRM and constitutescommon law fraud and breach of fiduciary duty and was wrongfully taken by Mr.Paulsell.  Alternatively, if Mr.Paulsell’s allegations in his litigation against the Cohens are untrue, theCompany’s suit alleges, then that litigation was initiated without foundationand knowing it would cause damage to the Company.  The suit seeks a constructive trust in favor of the Company onthe recovery, if any, by Mr. Paulsell resulting from his legal action describedabove.

 

 

**ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K.**

 
| **(a)** | **Exhibits**             |
|---------|--------------------------|
|    |                     |   |
|    |                     | None. |
|    |                     |   |
| **(b)** | **Reports on Form 8-K.** |
|    |                     |   |
|    |                     | Acquisition  Or Disposition Of Assets (Incorporated herein by reference to Form 8-K dated  February 26, 2002) |

 

 

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##### **SIGNATURE**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,Registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

**                                                                                                                          TRMCORPORATION**

 
| Date:  | May 15, 2002 |   | By:    | /s/ Daniel L. Spalding |   |
|--------|--------------|--------|--------|------------------------|--------|
|   |         |   |   | Daniel L. Spalding     |
|   |         |   |   | President              |
|   |         |   |   |                   |

 

 

 

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