**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**ý****  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31, 2003**

 

**o****  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the transition periodfrom               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 AvenuePortland, Oregon 97230**              |
| (Address of principal executive offices) (Zip Code)            |
|                                                           |   |                                 |
| **(503) 257-8766**                                             |
| (Registrant’s telephone number, including area code)      |

 

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 by check mark whetherthe registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

 

YES  o    NO  ý

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date:

 

| **CLASS**    |   | **OUTSTANDING AT MARCH 31, 2003** |
|--------------|--------|-----------------------------------|
| Common Stock |   | 7,059,790                         |

 

 

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**PART I - FINANCIAL INFORMATION**

 

**ITEM 1.                 FINANCIAL STATEMENTS**

 

**TRM Corporation**

**ConsolidatedBalance Sheets**

**(In thousands)**

 
|                                                                                                                            |   | **December 31,  2002** |       | **March 31,  2003** |       |
|---------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|---------------------|------------|
|                                                                                                                            |   |                   |       | **(unaudited)**     |       |
| **Assets**                                                                                                                      |   |                   |       |                |       |
|                                                                                                                            |   |                   |       |                |       |
| Current assets:                                                                                                                 |   |                   |       |                |       |
| Cash and cash equivalents                                                                                                       |   | $                      | 2,127      |                | $          | 2,436 |   |
| Accounts receivable, net                                                                                                        |   | 6,084                  |       | 6,276               |       |
| Inventories, net                                                                                                                |   | 947                    |       | 887                 |       |
| Prepaid expenses and other                                                                                                      |   | 778                    |       | 850                 |       |
| Deferred tax asset                                                                                                              |   | 876                    |       | 198                 |       |
| Total current assets                                                                                                            |   | 10,812                 |       | 10,647              |       |
| Equipment, less accumulated depreciation                                                                                        |   | 67,916                 |       | 67,286              |       |
| Intangible assets                                                                                                               |   | 72                     |       | 72                  |       |
| Other assets                                                                                                                    |   | 1,773                  |       | 1,634               |       |
| Total assets                                                                                                                    |   | $                      | 80,573     |                | $          | 79,639 |   |
|                                                                                                                            |   |                   |       |                |       |
| **Liabilities  and Shareholders’ Equity**                                                                                  |   |                   | ** ** |                | ** ** |
|                                                                                                                            |   |                   |       |                |       |
| Current liabilities:                                                                                                            |   |                   |       |                |       |
| Accounts payable                                                                                                                |   | $                      | 2,231      |                | $          | 2,838 |   |
| Accrued expenses                                                                                                                |   | 7,932                  |       | 5,754               |       |
| Income taxes payable                                                                                                            |   | 3                      |       | —              |       |
| Current portion of litigation settlement                                                                                        |   | 1,050                  |       | 1,750               |       |
| Current portion of long-term debt                                                                                               |   | 21                     |       | 21                  |       |
| Current portion of obligations under capital leases                                                                             |   | 1,508                  |       | 2,106               |       |
| Total current liabilities                                                                                                       |   | 12,745                 |       | 12,469              |       |
|                                                                                                                            |   |                   |       |                |       |
| Litigation settlement                                                                                                           |   | 738                    |       | —              |       |
| Long-term debt                                                                                                                  |   | 16,709                 |       | 14,952              |       |
| Obligations under capital leases                                                                                                |   | 2,579                  |       | 3,744               |       |
| Deferred tax liability                                                                                                          |   | 2,203                  |       | 2,182               |       |
| Other long-term liabilities                                                                                                     |   | 128                    |       | 116                 |       |
| Preferred dividends payable                                                                                                     |   | 3,377                  |       | 3,752               |       |
| Total liabilities                                                                                                               |   | 38,479                 |       | 37,215              |       |
|                                                                                                                            |   |                   |       |                |       |
| Shareholders’ equity:                                                                                                      |   |                   |       |                |       |
| Preferred stock, no par value.   Authorized 5,000 shares; 1,778 shares issued and outstanding (liquidation  preference $20,003) |   |                   | 19,798     |                |       | 19,798 |   |
| Common stock, no par value.   50,000 authorized; 7,060 shares issued and outstanding                                            |   | 19,026                 |       | 19,026              |       |
| Additional paid-in capital                                                                                                      |   | 63                     |       | 63                  |       |
| Accumulated other comprehensive loss                                                                                            |   | (738                   | )          | (786                | )          |
| Retained earnings                                                                                                               |   | 3,945                  |       | 4,323               |       |
| Total shareholders’ equity                                                                                                 |   | 42,094                 |       | 42,424              |       |
| Total liabilities and shareholders’ equity                                                                                 |   | $                      | 80,573     |                | $          | 79,639 |   |

 

See accompanying notes to consolidated financial statements.

 

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**TRM Corporation**

**ConsolidatedStatements of Operations**

**(unaudited)**

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

 
|                                                                         |   | **Three Months Ended  March 31,** |   |
|------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                         |   | **2002**                          |   | **2003** |   |
| Sales                                                                        |   | $                                 | 20,616 |   | $ | 22,414 |   |
| Less discounts                                                               |   | 3,495                             |   | 3,726 |   |
| Net sales                                                                    |   | 17,121                            |   | 18,688 |   |
| Cost of sales                                                                |   | 10,567                            |   | 11,086 |   |
| Gross profit                                                                 |   | 6,554                             |   | 7,602 |   |
| Selling, general and administrative expense                                  |   | 6,454                             |   | 5,799 |   |
| Operating income                                                             |   | 100                               |   | 1,803 |   |
| Interest expense                                                             |   | 444                               |   | 330 |   |
| Other (income) expense, net                                                  |   | (73                               | )      | 213 |   |
| Income (loss) before minority interest                                       |   | (271                              | )      | 1,260 |   |
| Minority interest in losses of consolidated subsidiary                       |   | 72                                |   | — |   |
| Income (loss) from continuing operations before income  taxes                |   | (199                              | )      | 1,260 |   |
| Provision (benefit) for income taxes                                         |   | (126                              | )      | 507 |   |
| Income (loss) from continuing operations                                     |   | (73                               | )      | 753 |   |
| Loss from discontinued operations                                            |   | (264                              | )      | — |   |
| Net income (loss)                                                            |   | $                                 | (337   | ) | $ | 753 |   |
|                                                                         |   |                              |   |   |   |
| Basic and diluted per share information:                                     |   |                              |   |   |   |
| Net income (loss) from continuing operations                                 |   | $                                 | (73    | ) | $ | 753 |   |
| Preferred stock dividends                                                    |   | (375                              | )      | (375 | ) |
| Net income (loss) from continuing operations availableto common shareholders |   | $                                 | (448   | ) | $ | 378 |   |
|                                                                         |   |                              |   |   |   |
| Basic and diluted shares outstanding                                         |   | 7,060                             |   | 7,060 |   |
|                                                                         |   |                              |   |   |   |   |   |
| Basic and diluted income (loss) per share from  continuing operations        |   | $                                 | (.06   | ) | $ | .05 |   |
| Basic and diluted loss per share from discontinued  operations               |   | (.04                              | )      | — |   |
| Basic and diluted net income (loss) per share                                |   | $                                 | (.10   | ) | $ | .05 |   |

 

See accompanying notes to consolidated financial statements.

 

3

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**TRM Corporation**

**ConsolidatedStatement of Shareholders’ Equity**

**(unaudited)**

**(In thousands)**

 
|                                     |   | **Comprehensive  Income** |   | **Preferred** |   | **Common** |   | **Additional  Paid-in  Capital** |   | **Accumulated  Other  Comprehensive  Loss** |   | **Retained  Earnings** |   | **Total** |   |
|------------------------------------------|--------|---------------------------|--------|---------------|--------|------------|--------|----------------------------------|--------|---------------------------------------------|--------|------------------------|--------|-----------|--------|
|                                     |   |                      |   |          |   |       |   |
|                                     |   |                      |   |          |   |       |   |
|                                     |   | **Shares**                |   | **Amounts**   |   | **Shares** |   | **Amounts**                      |   |                                        |   |                   |   |
|                                     |   |                      |   |          |   |       |   |                             |   |                                        |   |                   |   |      |   |   |   |   |   |
| **Balances,  December 31, 2002**    |   |                      |   | 1,778         |   | $          | 19,798 |                             | 7,060  |                                        | $      | 19,026                 |   | $         | 63     |   | $ | (738 | ) | $ | 3,945 |   | $ | 42,094 |   |
| Comprehensive  income                    |   |                      |   |          |   |       |   |                             |   |                                        |   |                   |   |      |   |   |   |   |   |
| Net  income                              |   | $                         | 753    |          | — |       | — |                             | — |                                        | — |                   | — |      | — |   | 753 |   | 753 |   |
| Other  comprehensive income, net of tax  |   |                      |   |          |   |       |   |                             |   |                                        |   |                   |   |      |   |   |   |   |   |
| Foreign  currency translation adjustment |   | (48                       | )      | —        |   | —     |   | —                           |   | —                                      |   | —                 |   | (48       | )      | — |   | (48 | ) |
| Comprehensive  income                    |   | $                         | 705    |          | — |       | — |                             | — |                                        | — |                   | — |      | — |   | — |   | — |   |
| Preferred  stock dividends               |   |                      |   | —        |   | —     |   | —                           |   | —                                      |   | —                 |   | —    |   | (375 | ) | (375 | ) |
| **Balances,  March 31, 2003**       |   |                      |   | 1,778         |   | $          | 19,798 |                             | 7,060  |                                        | $      | 19,026                 |   | $         | 63     |   | $ | (786 | ) | $ | 4,323 |   | $ | 42,424 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

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**TRM Corporation**

**ConsolidatedStatements of Cash Flows**

**(unaudited)**

**(In thousands)**

 
|                                                                                      |   | **Three Months Ended  March 31,** |   |
|-------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                      |   | **2002**                          |   | **2003** | ** ** |
| **Operating activities:**                                                                 |   |                              |   |   |   |
| Net income (loss)                                                                         |   | $                                 | (337   | ) | $ | 753 |   |
| Adjustments to reconcile net income (loss) to net cash  provided by operating activities: |   |                              |   |   |   |
| Depreciation and amortization                                                             |   | 2,442                             |   | 2,495 |   |
| Minority interest in earnings of consolidated  subsidiary                                 |   | (72                               | )      | — |   |
| Other                                                                                     |   | (12                               | )      | — |   |
| Loss on disposal of equipment  and vehicles                                          |   | 82                                |   | 240 |   |
| Non-cash stock compensation                                                               |   | 11                                |   | — |   |
| Changes in items affecting operations:                                                    |   |                              |   |   |   |
| Accounts receivable                                                                       |   | (815                              | )      | (42 | ) |
| Inventories                                                                               |   | (207                              | )      | 57 |   |
| Income tax receivable                                                                     |   | 60                                |   | — |   |
| Prepaid expenses and other                                                                |   | (150                              | )      | (91 | ) |
| Accounts payable                                                                          |   | (147                              | )      | 639 |   |
| Accrued expenses                                                                          |   | (682                              | )      | (2,142 | ) |
| Deferred taxes                                                                            |   | (96                               | )      | 594 |   |
| Total operating activities                                                                |   | 77                                |   | 2,503 |   |
| **Investing activities:**                                                                 |   |                              |   |   |   |
| Proceeds from sale of equipment                                                           |   | 81                                |   | 379 |   |
| Capital expenditures                                                                      |   | (1,036                            | )      | (348 | ) |
| Other                                                                                     |   | (77                               | )      | — |   |
| Total investing activities                                                                |   | (1,032                            | )      | 31 |   |
| **Financing activities:**                                                                 |   |                              |   |   |   |
| Borrowings on notes payable                                                               |   | 5,570                             |   | 4,756 |   |
| Repayment of notes payable                                                                |   | (5,114                            | )      | (6,513 | ) |
| Principal payments on capital lease obligations                                           |   | —                            |   | (402 | ) |
| Other long-term liabilities                                                               |   | (10                               | )      | — |   |
| Purchase of minority interest                                                             |   | (60                               | )      | — |   |
| Total financing activities                                                                |   | 386                               |   | (2,159 | ) |
| Effect of exchange rate changes                                                           |   | 44                                |   | (66 | ) |
| Net increase (decrease) in cash and cash equivalents                                      |   | (525                              | )      | 309 |   |
| Beginning cash and cash equivalents                                                       |   | 1,598                             |   | 2,127 |   |
| Ending cash and cash equivalents                                                          |   | $                                 | 1,073  |   | $ | 2,436 |   |
|                                                                                      |   |                              |   |   |   |
| Supplemental disclosure of non-cash transactions:                                         |   |                              |   |   |   |
| Disposal of assets under a non-cash sales agreement                                       |   |                              |   |   |   |
| Current assets                                                                            |   | $                                 | 3      |   | $ | — |   |
| Non-current assets                                                                        |   | 3,145                             |   | — |   |
| Current liabilities                                                                       |   | (203                              | )      | — |   |
|                                                                                      |   |                              |   |   |   |
| Assets acquired under capital lease obligations                                           |   | —                            |   | 2,278 |   |

 

See accompanying notes to consolidated financial statements.

 

5

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**TRM Corporation**

 

**Notes to Consolidated FinancialStatements (unaudited)**

 

1.                                       InterimFinancial Data:

 

The consolidatedfinancial 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 consolidated financial statements should be read inconjunction with the Company’s latest annual report to shareholders.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.

 

2.                                       FinancialStatements Reclassification:

 

Reclassifications havebeen made to amounts in prior years to conform to the current yearpresentation.  These changes had noeffect on previously reported results of operations or shareholders' equity.

 

3.                                       NetIncome (Loss) Per Share:

 

Basic and diluted net loss per share are based on theweighted average number of common shares outstanding during each period, withdiluted including the effect of potentially dilutive securities.  For the three months ended March 31, 2003and 2002, the weighted average number of common shares for basic net income pershare information was 7,060,000. In calculating basic net income (loss) pershare, dividends for preferred stock are deducted to arrive at income (loss)available for common stockholders.  Fordiluted net income (loss) per share, the calculation assumes the conversion ofcommon stock equivalents including the conversion of preferred stock to commonunless such conversion is anti-dilutive. For the three months ended March 31, 2002, no shares were added to theweighted average shares outstanding because the addition of shares would be anti-dilutive.  For the three months ended March 31, 2003,no convertible preferred stock was included in the calculation since it wouldhave been anti-dilutive and no shares were added to the weighted average sharesoutstanding because there were no dilutive common stock equivalents.

 

 

4.                                       Inventories(in thousands):

 
|                 |   | **December  31,  2002** |   | **March 31,  2003** |   |
|----------------------|--------|-------------------------|--------|---------------------|--------|
|                 |   |                    |   | **(unaudited)**     |   |
|                 |   |                    |   |                |   |
| Paper                |   | $                       | 5      |                | $      | 2 |   |
| Toner  and developer |   | 8                       |   | 7                   |   |
| Parts                |   | 934                     |   | 878                 |   |
| Total                |   | $                       | 947    |                | $      | 887 |   |

 

5.                                       SegmentReporting (in thousands):

 

The Company has three reportable segments:  Photocopy, ATM, and S-3 Corporation.  Photocopy owns and maintains self-servicephotocopiers in retail establishments. ATM owns and operates ATM machines in retail establishments.  S-3 Corporation develops software to deliverproducts and services through ATMs.

 

The accounting policies of the segments aresubstantially the same as those described in Note 1 of the Company’s Form 10-Kfor the year ended December 31, 2002. The Company evaluates each

 

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segment’s performance based on income or loss before interest andincome taxes, excluding non-recurring charges. Information regarding the operations of these reportable segments is asfollows:

 
|                                                        |   | **Three Months Ended** |   |
|-------------------------------------------------------------|--------|------------------------|--------|
|                                                        |   | **March 31,  2002**    |   | **March 31,  2003** |   |
|                                                        |   | **(unaudited)**        |   | **(unaudited)** |   |
|                                                        |   |                   |   |   |   |
| Net Sales                                                   |   |                   |   |   |   |
| Photocopy                                                   |   | $                      | 11,621 |   | $ | 10,696 |   |
| ATM                                                         |   | 4,862                  |   | 7,390 |   |
| S-3 Corporation                                             |   | 638                    |   | 602 |   |
| Total                                                       |   | $                      | 17,121 |   | $ | 18,688 |   |
|                                                        |   |                   |   |   |   |
| Income (loss) before  interest, taxes and minority interest |   |                   |   |   |   |
| Photocopy                                                   |   | $                      | 1,388  |   | $ | 1,443 |   |
| ATM                                                         |   | (1,399                 | )      | 153 |   |
| S-3 Corporation                                             |   | (80                    | )      | (6 | ) |
| Total                                                       |   | $                      | (91    | ) | $ | 1,590 |   |

 

6.                                       NewAccounting Standards:

 

In December 2002, the Financial Accounting StandardsBoard (FASB or the “Board”) issued Statement of Financial Accounting StandardsNo. 148 (SFAS 148), “Accounting for Stock-Based Compensation – Transition andDisclosure – an amendment of FASB Statement No. 123.”  This Statement amends SFAS No. 123, “Accounting for Stock-BasedCompensation” to provide alternative methods of transition for a voluntarychange to the fair value based method of accounting for stock-based employeecompensation.  In addition, thisStatement amends the disclosure requirements of SFAS No. 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect ofthe method used on reported results. SFAS No. 148 provides for voluntary adoption of the fair value methodfor entities with fiscal years ending after December 15, 2002.  The Company has adopted the prominentdisclosure provisions.  The followingtable illustrates the effect on net income and earnings per share if theCompany had applied the fair value recognition provisions of SFAS No. 123 (inthousands, except per share data).

 

 

|                                                                                                                                         |   | **Three Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                                                         |   | **March 31,  2002**    |   | **March 31,  2003** |   |
|                                                                                                                                         |   | **(unaudited)**        |   | **(unaudited)** |   |
| Net income (loss), as  reported                                                                                                              |   | $                      | (337   | ) | $ | 753 |   |
| Deduct total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |   | (40                    | )      | (14 | ) |
| Pro forma net income  (loss)                                                                                                                 |   | $                      | (377   | ) | $ | 739 |   |
|                                                                                                                                         |   |                   |   |   |   |
| Income (loss) per  share-basic and diluted:                                                                                                  |   |                   |   |   |   |
| As reported                                                                                                                                  |   | $                      | (.10   | ) | $ | .05 |   |
| Pro forma                                                                                                                                    |   | $                      | (.11   | ) | $ | .05 |   |

 

In January 2003, the FASB issued FASB InterpretationNo. 46 “Consolidation of Variable Interest Entities” (“FIN 46”).   FIN 46 addresses consolidation bybusiness enterprises of variable interest entities.  Under thatinterpretation, certain entities known as Variable Interest Entities

 

7

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(“VIEs”) must be consolidated by the primary beneficiary of theentity.  The  primary beneficiaryis generally defined as having the majority of the risks and rewards arisingfrom the VIE.  For VIEs in which asignificant (but not majority) variable interest is held, certain disclosuresare required.  FIN 46 appliesimmediately to variable interest entities created after January 31, 2003, andapplies in the first year or interim period beginning after June 15, 2003 tovariable interest entities in which an enterprise holds a variable interestthat it acquired before February 1, 2003. The Company is currently assessing the impact the adoption of thisinterpretation will have on its results of operations, financial position andcash flows.

 

**ITEM2.****                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS**

 

Forward-Looking Statements

 

Information in this Form 10-Q that is not historicalin nature, including information about the Company’s goals, plans andexpectations regarding expansion, capital expenditures, expanding the ATMbusiness, revenues from the ATM business becoming a higher percentage ofoverall revenue, financing of capital expenditures, and obtaining long-termasset based financing, constitutes forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934.  We areincluding this statement for the purpose of invoking the safe-harbor protectionof these sections.  Theseforward-looking statements are based on the belief of the Company’s managementas well as assumptions made by, and information currently available to, theCompany’s management.  Factors thatcould cause the actual results to differ materially from the forward-lookingstatements include, but are not limited to: 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.  Many ofthese factors are not within the Company’s control.  Any forward-looking statements should be considered in light ofthese factors as well as risk factors and business conditions discussed in theCompany’s Form 10-K for the year ended December 31, 2002.  Based upon changing conditions, should anyone or more of these risks or uncertainties materialize, or should anyunderlying assumptions prove incorrect, actual results may vary materially fromthose described herein as anticipated, believed, estimated, expected orintended.  The Company does not intendto update these forward-looking statements.

 

General

 

TRM Corporation and its subsidiaries (collectively,“TRM” or the “Company”) currently provide self-service cash delivery andaccount balance inquiry, delivered through Automated Teller Machines (ATMs),and photocopy services delivered through TRM photocopy locations in retailenvironments to consumers.

 

As of March 31, 2003, the Company’s ATM network had atotal of 3,100 revenue-generating machines deployed throughout the UnitedKingdom and United States, representing an increase of 652 ATM machines whencompared to the same date in 2002.  TheATM operations produced net

 

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sales of $7.4 million during the first quarter of 2003, representing anincrease of $2.5 million (or 52.0%) as compared to the same period in the prioryear.  The Company believes thatrevenues generated from services delivered through its ATM network willrepresent a greater percentage of overall net sales in the future.

 

As of March 31, 2003, the Company had a total of27,900 photocopy locations in the United States, Canada and the UnitedKingdom.  This represented a decrease of1,261 (or 4.4%) locations when compared to the same date in 2002 and was theresult of the elimination of unprofitable locations.  Photocopy net sales were $10.7 million for the quarter endedMarch 31, 2003, down from $11.6 million during the same quarter of 2002.  This decrease in net sales was caused, inpart, by the extreme weather conditions experienced in the Northeastern part ofthe United States during the first two months of 2003 as well as from theelimination of unprofitable sites.

 

The Company maintains and operates a number of servicecenters throughout the United States, Canada, and United Kingdom to support itsphotocopy and ATM networks.  As of March31, 2003 the Company had 25 service centers in the United States, 4 in Canadaand 2 in the United Kingdom.  Thisrepresented a decrease of 10 service centers when compared to the same date in2002 and was the result of the Company’s effort to reduce overhead byconsolidating sites.

 

S-3 Corporation generated $602,000 in sales for thethree month period ending March 31, 2003 as compared to $638,000 over thesame period in 2002.  This represented adecrease of $36,000 or 5.6%.

 

In March 2003, the Company and its primary lender(Bank of America N.A.) executed a new loan commitment to refinance theCompany’s current revolving loan on substantially more favorable terms,including a reduction in interest rate from prime plus 200 basis points toprime plus 50 basis points.  The newfacility includes a $15,000,000 three-year term loan, which matures in March2006, and a $4,000,000 revolving line of credit which matures one year from thedate of origination.  Pending closing ofthis new facility, maturity of the Company’s existing loan has been extendedthrough June 30, 2004 and the quarterly scheduled reductions in availabilityunder the loan have been reduced from $1 million to $750,000.

 

In April 2003, DZ Bank AG, DeutscheZentral-Genossenschaftsbank Frankfurt am Main (DZ Bank) approved a request to increasecash available for use in TRM’s USA ATM network from $30 million to $50million.  The additional $20 millioncash facility will be available to support continued growth in the Company’sATM network as may be needed from time to time.

 

On March 14, 2000, a Deposit Trust Agreement(“Agreement”) was entered into between GSS Holdings, Inc. as Depositor,Wilmington Trust Company as Owner Trustee, and TRM ATM Corporation (“Servicer”)as Administrator. By virtue of the Agreement, TRM Inventory Funding Trust (the“Trust”) was created.  Neither Servicer,TRM nor any affiliates have any ownership interest in the Trust.  Any risk with regard to the Trust or theability of the Trust to repay the Certificates resides with the Trust and withGSS Holdings as the Depositor (equity investor in the amount of $9,000) andwith Autobahn Funding Company LLC (equity investor in the amount of $891,000)in the Trust, rather than with Servicer, which merely serves as anadministrator and servicer of the Trust. Both GSS Holdings and Autobahn Funding Company LLC are parties relatedto DZ Bank and are independent of the Servicer and the Company. The purpose ofthe Trust is to provide cash to be placed in the Company’s ATM machines (“VaultCash”), through accessing commercial paper markets.  Undivided interests in the Trust (“Certificates”) are sold toindividuals and entities, and the liability of repaying or redeeming theCertificates resides with the Trust. The Trust has the ability to sell theCertificates, borrow and repay funds and make other payments under the Loan andServicing Agreement, and to engage the Servicer and other agents andcontractors from time to time to perform all duties assigned under the Loan andServicing Agreement.

 

As borrower under the Loan and Servicing Agreement,the Trust, including its equity holders, is the sole obligor for repayment ofcommercial paper holders.  In the eventthat the Liquidity Providers (currently DZ Bank serves as both Liquidity Agentand Liquidity Provider) would be required to provide monies, the Trust would beobligated to the Liquidity Provider for repayment of monies advanced under theLiquidity Purchase Agreement.  Theobligation of the Trust is 97% backed by cash in the ATM network and a 3%equity investment in the Trust.

 

When the Vault Cash is placed in the ATM, the Trusthas a security interest in all of the fees and charges earned or received inconnection with all revenue generating transactions initiated at ATMs. The cashat all times remains the property of the Trust, and the Trust is ultimatelyobligated to repay the Certificateholders. At no time do the Certificateholders have recourse against the Servicerunder the Loan and Servicing Agreement. The Company maintains letters of credit totaling $1.5 million atMarch 31, 2003 to guarantee the performance of the Servicer;subcontractors maintain insurance on behalf of the Trust so as to ensure thecash is safe during delivery to ATM machines, and the Company maintainsinsurance on behalf of the Trust to ensure the cash is safe during its time inATM machines. The Company pays the Trust fees, totaling $260,000 and $202,000for the quarters ended March 31, 2003 and 2002, respectively, for use ofthe cash while it is in transit and in ATM machines.  The commercial paper facility matures in 2007.

 

9

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Results of Operations

 

The following table sets forth, for the three monthsended March 31, 2002 and 2003, selected statement of operations data,expressed as a percentage of sales, of each item on the Consolidated Statementsof Operations (see page 3 of this Form 10-Q).

 
|                                                          |   | **As a Percentage of Sales** |   |
|---------------------------------------------------------------|--------|------------------------------|--------|
|                                                          |   | **2002**                     |   | **2003** |   |
|                                                          |   |                         |   |   |   |
| Sales                                                         |   | 100.0                        | %      | 100.0 | % |
| Sales discounts                                               |   | 17.0                         |   | 16.6 |   |
| Net Sales                                                     |   | 83.0                         |   | 83.4 |   |
| Cost of sales                                                 |   | 51.2                         |   | 49.5 |   |
| Selling, general and  administrative                          |   | 31.3                         |   | 25.9 |   |
| Operating income                                              |   | 0.5                          |   | 8.0 |   |
| Interest expense, net                                         |   | 2.2                          |   | 1.4 |   |
| Other (income) expense,  net                                  |   | (0.4                         | )      | 1.0 |   |
| Minority interest                                             |   | (0.3                         | )      | — |   |
| Income (loss) from  continuing operations before income taxes |   | (1.0                         | )      | 5.6 |   |
| Provision (benefit) for  income taxes                         |   | (0.6                         | )      | 2.2 |   |
| Income (loss) from  continuing operations                     |   | (0.4                         | )      | 3.4 |   |
| Loss from discontinued  operations                            |   | (1.2                         | )      | — |   |
| Net income (loss)                                             |   | (1.6                         | )%     | 3.4 | % |

 

Three Months ended March 31, 2003 Compared to Three Months endedMarch 31, 2002

 

For the quarter ended March 31, 2003, net salesincreased by $1.6 million (9.2%) to $18.7 million from $17.1 million for thefirst quarter of 2002, attributable primarily to ATM unit expansion and higherpricing throughout the Company’s ATM network.

 

Net sales from the Company’s ATM business increased to$7.4 million compared to $4.9 million, an increase of $2.5 million (52.0%) overthe same quarter of 2002.  The Companyexperienced this significant increase in ATM net sales due to a net addition of652 ATM machines, primarily in the United Kingdom.  Withdrawal transactions increased 26.8% to 3.4 million for thequarter ended March 31, 2003 from 2.7 million for the same period in 2002.  In addition, the gross surcharge (conveniencefee) revenue per transaction has increased 18.6% to $2.04 at March 31,2003 from $1.72 at March 31, 2002.

 

Photocopy net sales were down $0.9 million (8.0%) forthe quarter ended March 31, 2003 as compared to the same period in 2002.  This decrease reflects both the eliminationof unprofitable locations and extreme weather conditions experienced in theNortheastern part of the United States in the first quarter of 2003.  Overall copy volumes decreased 12.5%, and billedunits decreased by 4.8% for the quarter compared to the same quarter of 2002,and these decreases in copy volume and billed units resulted in a decrease inaverage copies per unit to 2,711 for the quarter ended March 31, 2003 from2,952 for the same period in 2002. Although price per copy increased by 3.7% over March 31, 2002, theCompany realized a decrease in cumulative billed revenue per unit to

 

10

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$155 at March 31, 2003 down from $163 at March 31, 2002.  Billed revenue per unit refers to therevenue recorded as a result of actual machine meter readings obtained withoutconsideration for accruals or deferrals of revenue resulting from the timingdifferences between the last day of the month and the date the meter readingsare obtained.  Additional accruals anddeferrals of revenue can result when meter readings on newly installed orpulled machines do not coincide with the actual calendar month.  The Company has adjusted its meter readingdates in order to more closely match meter readings with a complete calendarmonth in order to mitigate the need for accruals and deferrals going forward.

 

A billed unit is a unit that has generated an invoiceduring the month.  Due to the timing ofinstallations, removals, or maintenance during any given billing period, billedunits may be slightly less than the average number of units installed during abilling period.  The differences inunits billed and average units installed during a billing period does not resultin material timing differences.

 

S-3 Corporation generated $602,000 in sales fromcontracted software engineering services for the quarter ended March 31, 2003compared with $638,000 generated for the same period in 2002.  S-3 reported a net loss of $10,000 for thefirst quarter of 2003 compared to a net loss of $66,000 over the same period inthe 2002.

 

Sales discounts are the portion of revenue retained byretail customers.  Sales discounts aregreater in the photocopy business than in the ATM business and generally varyat individual retail businesses depending on volume — the higher the volume,the greater the discount.  Salesdiscounts as a percentage of sales as of March 31, 2003 were 16.6% comparedwith 17.0% at March 31, 2002.  Salesdiscounts in the photocopy business have decreased from 18.4% in the firstquarter of 2002 to 17.9% in the first quarter of 2003.  This decrease is primarily due to movingcustomers to lower discount programs based upon review of their actual usage.  The lower discount programs offer a reducedmonthly minimum fee to the customer corresponding to their lower copyvolume.  Migrating low volume customersto reduced monthly minimum fees has caused a decrease in the percentage ofdiscounts related to sales under these programs in the first quarter of 2003compared to the same quarter of 2002. The reduced discounts as a percentage of sales result in the Company'sability to better recover the cost of low volume programs.  Sales discounts in the ATM sales, as apercentage of sales, increased from 15.2% for the period ended March 31, 2002to 15.9% for the period ended March 31, 2003. This increase is primarily due to a shift in the ATM industry towardhigher discount programs that allow the retailer to retain a larger portion ofthe revenue.

 

Cost of sales as a percentage of revenue decreased to49.5% in the first quarter of 2003 from 51.3% in the first quarter of 2002 on aconsolidated basis.  Cost of sales inthe ATM business decreased as a percentage of sales to 48.9% as of March 31,2003 compared to 63.2% as of March 31, 2002.  Per transaction costs were reduced primarily in two areas.  ATM program fees decreased by $.03 pertransaction as a result of lower transaction fees from the Trust as more fullydescribed in “Liquidity and Capital Resources.”  In addition, ATM processing fees declined from $.16 pertransaction for the quarter ended March 31, 2002 to $.07 per transactionfor the quarter ended March 31, 2003. This decrease is related to processing credits received as a result ofrenegotiation of processing fees in the United Kingdom.  Cost of sales associated with the photocopybusiness decreased on a real basis by 3.6% in the first quarter of 2003 ascompared to the same period in 2002; however, increased as a percentage ofsales to 49.9% at March 31, 2003 from 47.3% at March 31, 2002.  While labor included in cost of sales in thephotocopy business declined $586,000 (22.1%) at March 31, 2003 when compared tothe same period in 2002, total materials and depreciation related to cost ofsales in the photocopy business increased from $ .017 per transaction in thefirst quarter of

 

11

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2002 to $ .020 per transaction at March 31, 2003.  The cost of paper, toner and developer, andparts remained constant at $1.8 million for both periods ended March 31, 2003and 2002, however, due to decreased sales, these material costs increased as apercentage of sales from 12.7% at March 31, 2002 to 13.9% at March 31,2003.  This increase was the result ofreplenishment of depleted warehouses and work vans in the first quarter of2003.

 

Selling, general and administrative expenses decreased$655,000 (10.1%) during the quarter ended March 31, 2003 compared to the sameperiod in 2002 and fell as a percentage of revenue to 25.9% in 2003 from 31.3%in 2002.  The decrease is primarily dueto reduction in labor costs over the same period last year.  At the beginning of the third quarter 2002,the Company determined that it was overstaffed for current business demands andbegan a reduction in force throughout its operations.  The United States reduction in force took place primarily in thesecond half of 2002; the United Kingdom reduction in force took place in thefirst quarter of 2003.  The result ofthese reductions is a decrease in sales, general and administrative labor of$595,000 (17.8%) at March 31, 2003 compared with March 31, 2002 and a decreaseas a percentage of sales to 12.3% at the end of the first quarter of 2003compared with 16.2% for the same period in 2002.

 

During the quarter ended March 31, 2003, interestexpense decreased to $330,000 from $444,000 in 2002.  The decrease was primarily due to a reduction in borrowings underthe Company’s revolving credit facility to $14.9 million outstanding in 2003from $21.7 million outstanding for the same period in 2002.

 

Other expense increased during the quarter ended March31, 2003, compared to 2002, primarily due to damaged ATM machines that wereremoved from service in the United Kingdom.

 

The Company’s effective tax rate, excluding S-3Corporation, for the quarter ended March 31, 2003 was 40.0%, resulting in anincome tax provision of $509,000, compared to an effective tax rate of 40.3%and an income tax benefit of $183,000 for the same period in 2002.  The S-3 Corporation recorded losses in thefirst quarter of 2002 of $66,000 and recorded an income tax expense of$57,000.  In the first quarter of 2003,S-3 Corporation recorded losses of $10,000 with an income tax benefit of$1,900.  The result is a consolidatednet tax expense of $507,000 for the first quarter of 2003 compared with aconsolidated net tax benefit of $126,000 for the first quarter of 2002.

 

A reconciliation of income tax provision (benefit) forthe three months ended March 31, 2002 and 2003 is as follows:

 

|                                   |   | **Three  Months Ended** |     |
|----------------------------------------|--------|-------------------------|----------|
|                                   |   | **March 31,**

**2002** |     | **March 31,**

**2003** |   |
|                                   |   | **(unaudited)**         |     | **(unaudited)** |   |
| Components of  tax provision (benefit) |   |                    |     |   |   |
| Foreign expense  (benefit)             |   | $                       | 57,000   |   | $ | (1,900 | ) |
| Net operating  losses                  |   | (593,200                | )        | 451,900 |   |
| Depreciation                           |   | 408,000                 |     | 57,000 |   |
| Current  liabilities                   |   | 2,200                   |     | — |   |
| Total tax  provision (benefit)         |   | $                       | (126,000 | ) | $ | 507,000 |   |

 

Liquidity and Capital Resources

 

As of March 31, 2003, TRM generated $2.5 million incash flows from operations as compared to $77,000 for the same period in2002.  The Company has a working capitaldeficit that decreased to $1.8 million at March 31, 2003 from $2.1 million atMarch 31, 2002.  In 2003 the deficit issolely the result of the recognition of a litigation settlement liability inDecember 2002, which was subsequently paid in April 2003.

 

In March 2003, the Company and its primary lender(Bank of America N.A.) executed a new loan commitment to refinance theCompany’s current revolving loan on substantially more favorable terms,including a reduction in interest rate from prime plus 200 basis points toprime plus 50 basis points.  The newfacility includes a $15,000,000 three-year term loan, which matures in March2006, and a $4,000,000 revolving line of credit which matures one year from thedate of origination.

 

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Pending closing of this new facility, maturity of theCompany’s existing loan has been extended through June 30, 2004, and thequarterly scheduled reductions in availability under the loan were reduced from$1 million to $750,000.

 

In April 2003, DZ Bank AG, DeutscheZentral-Genossenschaftsbank Frankfurt am Main (DZ Bank) approved a request toincrease cash available for use in TRM’s USA ATM network from $30 million to$50 million.  The additional $20 millioncash facility will be available to support continued growth in the Company’sATM network as may be needed from time to time.

 

On March 14, 2000, a Deposit Trust Agreement(“Agreement”) was entered into between GSS Holdings, Inc. as Depositor,Wilmington Trust Company as Owner Trustee, and TRM ATM Corporation (“Servicer”)as Administrator. By virtue of the Agreement, TRM Inventory Funding Trust (the“Trust”) was created.  Neither Servicer,TRM nor any affiliates have any ownership interest in the Trust.  Any risk with regard to the Trust or theability of the Trust to repay the Certificates resides with the Trust and withGSS Holdings as the Depositor (equity investor in the amount of $9,000) andwith Autobahn Funding Company LLC (equity investor in the amount of $891,000)in the Trust, rather than with Servicer, which merely serves as anadministrator and servicer of the Trust. Both GSS Holdings and Autobahn Funding Company LLC are parties relatedto DZ Bank and are independent of the Servicer and the Company. The purpose ofthe Trust is to provide cash to be placed in the Company’s ATM machines (“VaultCash”), through accessing commercial paper markets.  Undivided interests in the Trust (“Certificates”) are sold toindividuals and entities, and the liability of repaying or redeeming theCertificates resides with the Trust. The Trust has the ability to sell theCertificates, borrow and repay funds and make other payments under the Loan andServicing Agreement, and to engage the Servicer and other agents andcontractors from time to time to perform all duties assigned under the Loan andServicing Agreement.

 

As borrower under the Loan and Servicing Agreement,the Trust, including its equity holders, is the sole obligor for repayment ofcommercial paper holders.  In the eventthat the Liquidity Providers (currently DZ Bank serves as both Liquidity Agentand Liquidity Provider) would be required to provide monies, the Trust would beobligated to the Liquidity Provider for repayment of monies advanced under theLiquidity Purchase Agreement.  Theobligation of the Trust is 97% backed by cash in the ATM network and a 3%equity investment in the Trust.

 

When the Vault Cash is placed in the ATM, the Trusthas a security interest in all of the fees and charges earned or received inconnection with all revenue generating transactions initiated at ATMs. The cashat all times remains the property of the Trust, and the Trust is ultimatelyobligated to repay the Certificateholders. At no time do the Certificateholders have recourse against the Servicerunder the Loan and Servicing Agreement. The Company maintains letters of credit totaling $1.5 million at March31, 2003 to guarantee the performance of the Servicer; subcontractors maintaininsurance on behalf of the Trust so as to ensure the cash is safe duringdelivery to ATM machines, and the Company maintains insurance on behalf of theTrust to ensure the cash is safe during its time in ATM machines. The Companypays the Trust fees, totaling $260,000 and $202,000 for the quarters endedMarch 31, 2003 and 2002, respectively, for use of the cash while it is intransit and in ATM machines.  Thecommercial paper facility matures in 2007.

 

The Company’s United Kingdom ATM business obtainsVault Cash under an agreement with a local bank.  Vault Cash obtained under the program remains the property of thebank, however, the Company is insured against risk of loss while the cash is inor being distributed to its ATM network.

 

13

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The Company expects that operations will continue for2003, with the realization of assets, and discharge of liabilities in theordinary course of business.  TheCompany believes that its prospective needs for working capital, capitalexpenditures and debt service will be met from cash flows generated byoperations.  If operations are notconsistent with management’s plan, however, there is no assurance that theamounts from these sources will be sufficient for such purposes.  In that event, or for other reasons, theCompany may be required to seek replacement financing and the Company may notbe able to obtain such financing on commercially reasonable terms or atall.  There is no assurance that anyreplacement financing will be available, or if available, will be on termssatisfactory to the Company.

 

A summary of the Company’s contractual commitments andobligations is as follows:

 

|                                |   | **Payments Due by Period** |     |
|-------------------------------------|--------|----------------------------|----------|
| Contractual obligations             |   | **Total**                  |     | **2003** |   | **2004-2005** |   | **2006-2007** |   | **After 5 years** |   |
| Long-term bank debt                 |   | $                          |  80 |   | $ |  21 |   | $ |  42 |   | $ |  17 |   | $ |  — |   |
| Capital lease  obligations          |   | 5,850                      |     | 1,631 |   | 3,473 |   | 651 |   | 95 |   |
| Operating leases                    |   | 8,629                      |     | 2,175 |   | 4,234 |   | 1,311 |   | 909 |   |
| Other long-term  obligations        |   | 702                        |     | 702 |   | — |   | — |   | — |   |
|                                |   |                       |     |   |   |   |   |   |   |   |   |
| Total contractual cash  obligations |   | $                          | 15,261   |   | $ | 4,529 |   | $ | 7,749 |   | $ | 1,979 |   | $ | 1,004 |   |
|                                     |        |                            |          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

|                          |   | **Amount of  Commitment Due by Period** | ** **   |
|-------------------------------|--------|-----------------------------------------|--------------|
| Other Commercial  Commitments |   | **Total**                               |         | **2003** |   | **2004-2005** |   | **2006-2007** |   | **After 5  years** | ** ** |
| Line of credit                |   | $                                       |  14,893 |   | $ |  — |   | $ |  14,893 |   | $ |  — |   | $ |  — |   |
|                               |        |                                         |              |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Critical Accounting Policies

 

The Company’s critical accounting policies as of March31, 2003 are consistent with those discussed in the Company’s Form 10-K for theyear ended December 31, 2002.

 

New Accounting Standards

 

In December 2002, the Financial Accounting StandardsBoard (FASB or the “Board”) issued Statement of Financial Accounting StandardsNo. 148 (SFAS 148), “Accounting for Stock-Based Compensation – Transition andDisclosure – an amendment of FASB Statement No. 123.”  This Statement amends SFAS No. 123, “Accounting for Stock-BasedCompensation” to provide alternative methods of transition for a voluntarychange to the fair value based method of accounting for stock-based employeecompensation.  In addition, thisStatement amends the disclosure requirements of SFAS No. 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect ofthe method used on reported results.  SFASNo. 148 provides for voluntary adoption of the fair value

 

14

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method for entities with fiscal years ending after December 15,2002.  The Company has adopted theprominent disclosure provisions.  SeeNote 6 to the consolidated financial statements.

 

In January 2003, the FASB issued FASB InterpretationNo. 46 “Consolidation of Variable Interest Entities” (“FIN 46”).  FIN 46 addresses consolidation bybusiness enterprises of variable interest entities.  Under that interpretation, certain entities known as VariableInterest Entities (“VIEs”) must be consolidated by the primary beneficiary ofthe entity.  The  primarybeneficiary is generally defined as having the majority of the risks andrewards arising from the VIE.  For VIEsin which a significant (but not majority) variable interest is held, certaindisclosures are required.  FIN 46applies immediately to variable interest entities created after January 31,2003, and applies in the first year or interim period beginning after June 15,2003 to variable interest entities in which an enterprise holds a variableinterest that it acquired before February 1, 2003.  The Company is currently assessing the impact the adoption ofthis interpretation will have on its results of operations, financial positionand cash flows.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Company is exposed to market risk from changes ininterest rates and foreign currency exchange rates, which could impact itsresults of operations and financial condition.

 

Interest Rate Risk. The Company maintains an investment portfolio that is comprised solelyof money market funds.  The incomeearned from these money market funds is subject to changes in interestrates.  For the quarters endedMarch 31, 2003 and 2002, interest income amounted to $23,000 and $25,000,respectively.  An immediate 10% changein interest rates would not have a material effect on the Company’s netincome.  Additionally, the Company isexposed to interest rate risk related to its credit facility.  Advances against the credit facilityperiodically renew, at which point the borrowings are subject to the thencurrent market interest rates, which may differ from the rates the Company iscurrently paying on its borrowings. Total debt outstanding under the Company’s line of credit was $14.9million and $21.7 million at March 31, 2003 and 2002, respectively.  Total interest expense relative to theseborrowings was $254,000 and $440,000 for the quarters ended March 31, 2003and 2002, respectively, at average interest rates of 6.25% and 8.25%,respectively.  If interest rates hadincreased by 100 basis points for each of those quarters, interest expensewould have increased by approximately $41,000 and $53,000 for March 31,2003 and 2002, respectively.

 

Foreign Currency Risk.* *The Company has internationalsubsidiaries subject to foreign currency rate exposure.  The Company pays the expenses of itsinternational operations in local currencies, namely, the British pound andCanadian dollar.  The internationaloperations are subject to risks typical of an international business,including, but not limited to: differing economic conditions, changes inpolitical climate, differing tax structures, other regulations andrestrictions, and foreign exchange rate volatility. Accordingly, future resultscould be materially and adversely affected by changes in these or otherfactors.

 

The Company is also exposed to foreign exchange ratefluctuations as they relate to revenues and operating expenses as the financialresults of foreign subsidiaries are translated into U.S. dollars inconsolidation.  Because exchange ratesvary, these results, when translated, may vary from expectations and adverselyimpact overall expected profitability. To date, the Company’s exposure to exchange rate volatility has not beensignificant.  Foreign exchange ratetransaction losses, net of gains for the quarters ended March 31, 2003 and2002 were approximately $12,500 and $12,000, respectively. If foreign currencyrates were to fluctuate by 10% from rates at March 31, 2003 andMarch 31, 2002, the Company’s financial position would be materiallyaffected.  Assuming a 10 percentappreciation or depreciation in foreign currency exchange rates from the quotedforeign currency exchange rates at March 31, 2003, the potential change inthe fair value of foreign currency-denominated assets and liabilities in eachentity would aggregate approximately $2.6 million.  No assurance can be given that changes in foreign currency rateswill not have a material impact on the Company’s results of operations in thefuture.

 

The Company does not hold or issue derivativecommodity instruments or other financial instruments for trading purposes.

 

15

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**ITEM 4.  CONTROLS AND PROCEDURES**

 

(a)  Evaluationof disclosure controls and procedures. Within the 90 days prior to the filing of this report, the Companycarried out an evaluation, under the supervision and with the participation ofthe Company’s management, including its chief executive officer and principalaccounting officer, of the effectiveness of the design and operation of theCompany’s “disclosure controls and procedures” (as defined in Rules 13a-14(c)and 15d – 14(c) of the Securities Exchange Act of 1934 (the “ExchangeAct”)).  Based upon that evaluation, thechief executive officer and principal accounting officer concluded that theCompany’s disclosure controls and procedures are effective in ensuring thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms.

 

(b)  Changes ininternal controls.  There were nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect those controls subsequent to the date we carried outthe Company’s evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

**PART II- OTHER INFORMATION**

 

**ITEM 1.   LEGAL PROCEEDINGS**

 

The information required by this item is incorporatedby reference from Item 3 of the Company’s Form 10-K for fiscal year endedDecember 31, 2002, and is supplemented as described below.

 

Subsequent to the filing of the Company’s Form 10-Kfor the fiscal year ended December 31, 2002, and as part of finalizing thesettlement, management concluded that it was in the Company’s best interest tobring a full and final resolution of the litigation.  The proposed settlement, provided, among other things, for a cashpayment of $1 million and a note payable to the Estate of Frederick O.Paulsell (the “Estate”) in the amount of $1 million maturing in 5 years.  The Company, with the approval of a majorityof disinterested directors, negotiated with the Estate to provide for animmediate cash payment of $750,000 (for an aggregate cash payment of $1.75million) immediately, rather than providing a $1 million note.  On April 17, 2003, the Company executed adefinitive settlement agreement and related documents and, in accordancetherewith, paid $1.75 million to the Estate.

 

The Company intends to seek payment of all or aportion of the $1.75 million payment from its directors’ and officers’liability insurance carrier, subject to a deductible of $250,000.  At this time, the Company is unable toprovide an accurate assessment of whether the insurance carrier will pay all orany portion of the $1.75 million payment.

 

**ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS**

 

None

 

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**ITEM 3.   DEFAULTS UPON SENIOR SECURITIES**

 

None

 

**ITEM 4.   SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS**

 

None

 

**ITEM 5.   OTHER INFORMATION**

 

None

 

**ITEM 6.   EXHIBITSAND REPORTS ON FORM 8-K**

 

**(a)**                      **Exhibits**

 

10.30                            Fifth Amendment to Loan andServicing Agreement dated April 23, 2003, among TRM Inventory Funding  Trust, TRM ATM Corporation, Autobahn Funding Company, LLC, DZ BankAG, Deutsche Zentral-  Genossenschaftsbank Frankfurt am Main, andU.S. Bank National Association.

 

99.1                                  Certification of Chief Executive Officer of TRMCorporation pursuant to 18 U.S.C. Section 1350.

 

99.2                                  Certificationof Principal Accounting Officer of TRM Corporation Pursuant to 18 U.S.C.Section 1350.

 

**(b)**                      **Reports on Form 8-K.**

 

None

 

 

**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                      |   | **TRM CORPORATION** |
|---------------------------|--------|---------------------|
|                      |   |                |   |
| Date:  May  15, 2003 | By:    | /s/ Rebecca J. Demy |   |
|                      |   |                | Rebecca J. Demy |
|                      |   |                | Principal Accounting  Officer |

 

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**CERTIFICATIONPURSUANT TO RULES 13a-14 AND 15d-14OF THE SECURITES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002**

 

I, Kenneth L. Tepper, certify that:

 

1.  I have reviewed thisquarterly report on Form 10-Q of TRM Corporation Inc;

 

2.  Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.  Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.  The registrant’s othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a)  designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)  evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the “Evaluation Date”);and

 

c)  presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.  The registrant’s othercertifying officers and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a)  all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b)  any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6.  The registrant’s othercertifying officers and I have indicated in this quarterly report whether ornot there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Dated:  May  15, 2003 | /s/ Kenneth L. Tepper   |   |
|----------------------------|-------------------------|--------|
|                       | Kenneth L. Tepper       |
|                       | Chief Executive Officer |

 

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**CERTIFICATIONPURSUANT TO RULES 13a-14 AND 15d-14OF THE SECURITES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002**

 

I, Rebecca J. Demy, certify that:

 

1.  I have reviewed thisquarterly report on Form 10-Q of TRM Corporation;

 

2.  Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.  Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.  The registrant’s othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a)  designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)  evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the “Evaluation Date”);and

 

c)  presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.  The registrant’s othercertifying officers and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a)  all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b)  any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6.  The registrant’s othercertifying officers and I have indicated in this quarterly report whether ornot there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Dated:  May  15, 2003 | /s/ Rebecca J. Demy          |   |
|----------------------------|------------------------------|--------|
|                       | Rebecca J. Demy              |
|                       | Principal Accounting Officer |

 

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