SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-6512
TRANSTECH INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Piscataway, New Jersey 08854
(Address of principal executive offices)
(732) 981-0777
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,829,190 shares of common stock, $.50 par value, outstanding as of
March 31, 2000. In addition, at such date, the issuer held
1,885,750 shares of common stock, $.50 par value, in treasury.
Transitional Small Business Disclosure Format
(Check One): Yes No X
Page 1 of 27 pages
Exhibit index on page 26
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED March 31, 2000
I N D E X
Page(s)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31,
2000 and December 31, 1999 3 - 4
Consolidated Statements of Operations for the 5
Three Months Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 6 - 7
Notes to Consolidated Financial Statements 8 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
EXHIBIT INDEX 26
EXHIBITS 27
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In $000's)
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 925 $ 474
Marketable securities 435 1,228
Accounts receivable - trade
(net of allowance for doubtful
accounts of $2) 213 214
Notes receivable 117 115
Closure cost receivable 193 158
Prepaid expenses and other 136 128
Total current assets 2,019 2,317
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 2,899 2,894
Less accumulated depreciation (2,825) (2,816)
Net property, plant and equipment 74 78
OTHER ASSETS
Assets held for sale 1,312 1,312
Escrowed funds from sale of
subsidiary 913 900
Other 133 133
Total other assets 2,358 2,345
TOTAL ASSETS $ 4,451 $ 4,740
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
<TABLE>
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
2000 1999
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 3 $ 7
Accounts payable 180 144
Accrued income taxes and related
interest 3,513 3,430
Accrued miscellaneous expenses 165 167
Total current liabilities 3,861 3,748
OTHER LIABILITIES
Long-term debt 6 6
Accrued remediation and closure
costs 2,089 2,091
Total other liabilities 2,095 2,097
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,714,940 shares issued 2,357 2,357
Additional paid-in capital 1,516 1,516
Retained earnings 5,618 6,015
Net unrealized gains on marketable
securities 18 21
Subtotal 9,509 9,909
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) (1,505) (1,105)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 4,451 $ 4,740
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
<S> <C> <C>
NET REVENUES $ - $ 84
COST OF OPERATIONS
Direct operating costs - 74
Selling, general and
administrative expenses 365 359
Total cost of operations 365 433
INCOME (LOSS) FROM OPERATIONS (365) (349)
OTHER INCOME (EXPENSE)
Investment income (loss) 29 39
Interest expense (1) (1)
Interest (expense) credit related
to income taxes payable (83) (93)
Gain (loss) from sale of property - 3
Miscellaneous income (expense) 23 47
Total other income (expense) (32) (5)
INCOME (LOSS) BEFORE INCOME TAXES
(CREDIT) (397) (354)
Income taxes (credit) - -
NET INCOME (LOSS) $ (397) $ (354)
INCOME (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) $(.14) $(.12)
NUMBER OF SHARES USED IN
CALCULATION 2,829,190 2,829,190
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1 $ 72
Cash paid to suppliers and employees (364) (352)
Interest and dividends received 15 30
Interest paid (1) (1)
Other income received 22 14
Income taxes paid - (1)
Net cash provided by (used in)
operating activities (327) (238)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 790 492
Purchase of marketable securities - -
Purchase of property, plant and
equipment (5) -
Proceeds from sale of property,
plant and equipment - 3
Collections of notes receivable - 7
Net cash provided by (used in)
investing activities 785 502
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (5) (6)
Payment of remediation and closure
costs (2) (2)
Net cash provided by (used in)
financing activities (7) (8)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 451 256
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 474 605
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $ 925 $ 861
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
For the Three Months Ended
March 31,
2000 1999
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (397) $ (352)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 9 17
(Gain) loss on sale of property,
plant and equipment - (3)
Increase (decrease) in deferred
income taxes - -
(Increase) decrease in assets:
Accounts and notes receivable,
-net (1) (10)
Prepaid expenses and other (44) (124)
Escrowed funds from sale of subsidiary (12) (10)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses 35 152
Accrued income taxes and related
interest 83 92
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (327) $ (238)
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
NOTE 1 - FORWARD LOOKING STATEMENTS
Certain statements in this report which are not historical
facts or information are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
levels of activity, performance or achievement of the Company, or
industry results, to be materially different from any future
results, levels of activity, performance or achievement expressed
or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business
strategy; the Company's ability to successfully identify new
business opportunities; changes in the industry; competition; the
effect of regulatory and legal proceedings; and other factors
discussed herein. As a result of the foregoing and other factors,
no assurance can be given as to the future results and achievements
of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these
statements.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements are presented in
accordance with the requirements of Form 10-QSB and consequently do
not include all of the disclosures normally required by generally
accepted accounting principles or those normally made in the
Company's annual Form 10-KSB filing. Accordingly, the reader of
this Form 10-QSB may wish to refer to the Company's Form 10-KSB for
the year ended December 31, 1999 for further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 1999 financial statements in order to
conform to the presentation followed in preparing the 2000
financial statements. Quarterly financial information has not been
audited. In the opinion of management, the information presented
reflects all adjustments necessary for a fair statement of interim
results. All such adjustments are of a normal and recurring nature
except as disclosed herein.
NOTE 3 - MARKETABLE SECURITIES
The Company classifies all equity securities and debt
securities as available-for-sale securities. Available-for-sale
debt securities are carried at amortized cost, which approximates
fair value because of their short term to maturity. At March 31,
2000, available-for-sale debt securities consisted of $379,000 of
U.S. Government Securities with maturities through April, 2000.
Available-for-sale equity securities are carried at fair value as
determined by quoted market prices. The portfolio of available-
for-sale equity securities had a cost of $38,000 and a market value
of $56,000 as of March 31, 2000. The aggregate excess of market
value over cost of such securities as of March 31, 2000 of $18,000
is presented as a separate component of stockholders' equity. The
excess of market value over cost consisted of gross unrealized
gains of $32,000 and gross unrealized losses of $14,000 as of March
31, 2000. The cost of marketable securities sold is determined on
the specific identification method and realized gains and losses
are reflected in income. Proceeds from sale and maturity of
available-for-sale securities during the three months ended March
31, 2000 amounted to $790,000. Dividend and interest income is
accrued as earned.
NOTE 4 - ASSETS HELD FOR SALE
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of March 31, 2000. The real
estate included in this category as of March 31, 2000 consists of
approximately 430 acres in Deptford, N.J., including approximately
100 acres upon which the landfill owned and previously operated by
the Company's subsidiary, Kinsley's Landfill, Inc., is situated.
The Company is pursuing the disposition of these properties.
However, based upon market conditions for real estate of this type,
the Company is unable to determine when such sale(s) will be
consummated.
NOTE 5 - INCOME TAXES
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings, the Service issued a deficiency notice
to the Company asserting adjustments to income of $33.3 million and
a corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest on
the asserted deficiency and penalties. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. The Company filed a petition with the Tax Court contesting
many of the proposed adjustments asserted in the deficiency notice.
The Company has reached settlement with the Service as to all
issues in the Tax Court litigation. For a discussion of this
matter, see "Taxes" contained in Part I, Item 2 Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources of this Form 10-QSB.
NOTE 6 - REMEDIATION AND CLOSURE COSTS
The Company and certain subsidiaries previously participated
in the resource recovery and waste management industries. These
activities included the hauling of waste, waste treatment and the
operation of three landfills. Although the landfills are now
closed, the Company continues to own two landfills and to remediate
one of the owned landfills and one landfill formerly leased, and
has both incurred, and accrued for, substantial costs associated
therewith.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material increases in remediation and closure costs
related to the Company's past waste related activities, possibly in
excess of the Company's available financial resources. A
significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows.
The Company's accruals for closure and remediation activities
equal the present value of its allocable share of the estimated
future costs related to a site less funds held in trust for such
purposes. Such estimates require a number of assumptions, and
therefore may differ from the ultimate outcome. The costs of
litigation associated with a site are expensed as incurred.
As of March 31, 2000, the Company has accruals totalling $11.1
million for its estimated share of remediation and closure costs in
regard to the Company's former landfill operations, $9.0 million of
which is held in trusts and maintained by trustees for financing of
the estimated $11.0 million required to fund the closure plan
related to the landfill in Deptford, New Jersey owned by the
Company's subsidiary, Kinsley's Landfill, Inc.
On December 23, 1997, the Company entered into four agreements
which settled lawsuits related to the allocation of costs of
remediation of the Kin-Buc Landfill,owned and operated by the
Company's subsidiary, Kin-Buc, Inc. ("Kin-Buc"). The Company and
other responsible parties including SCA Services, Inc. ("SCA"),
which is an affiliate of Waste Management, Inc. ("WMI"), have
provided funding for the continuing remediation of the Kin-Buc
Landfill, located in Edison, New Jersey, under an Amended
Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990. In
November 1992, EPA issued an Administrative Order for the
remediation of certain areas neighboring the Kin-Buc Landfill. The
Company initiated a suit in 1990 against generators and
transporters of waste deposited at a site with the intent of
obtaining contribution toward the cost of remediation. One of the
December 23, 1997 agreements provided an indemnification from SCA
to the Company which substantially relieved the Company from future
obligation with respect to the site.
In May 1997, EPA began an investigation of an area in the
vicinity of the Kin-Buc Landfill known as Mound B. In May 1998,
the final plan of this investigation was completed, and in February
1999, the Company received a copy of a letter sent from EPA to SCA
informing SCA that EPA has concluded that hazardous materials were
disposed of in Mound B. The letter also instructed SCA to provide
EPA with work plans to address conditions at the mound. During
February 2000, EPA sent the Company a request for information to
which the Company is preparing a response.
During July 1999, counsel to the Company was contacted by EPA
regarding a Piscataway, New Jersey site owned by Tang Realty, Inc.
("Tang"). Tang is a corporation controlled by Marvin H. Mahan, a
former director, officer and principal shareholder of the Company.
EPA is performing remediation at the site and had requested
information from approximately 100 potentially responsible parties
concerning their involvement with the Tang site. The Company had
no direct involvement with EPA since October 1990 and had not been
the recipient of an EPA request for information. The July 1999
inquiry set forth EPA's concern that the statute of limitations on
any claim EPA may have against the Company with respect to the site
would expire during August 1999. In consideration for EPA's
agreement to defer the filing of a claim against the Company prior
to the expiration of such statute of limitations, the Company
agreed to enter into an agreement to extend the statute of
limitations for a period of three months. In November 1999,
February 2000 and May 2000, EPA and the Company agreed to extend
the statute an additional three months. During this period, EPA
and the Company are to continue discussion of any potential claims
EPA may be contemplating against the Company with respect to the
site, and the amount of contribution EPA believes such claims may
warrant toward EPA's estimated $2.4 million of unallocated
remediation costs associated with the site. Pursuant to a 1988
agreement with Tang, in 1988, 1989 and 1990 Transtech spent
approximately $4.3 million for the remediation of the site.
NOTE 7 - LEGAL PROCEEDINGS
See Item 1 of Part II of this Form 10-QSB for a discussion of
recent developments with respect to the Company's legal matters.
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION, Cont'd
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements
and related notes, which provide additional information concerning
the Company's financial activities and condition.
Forward-Looking Statements
Certain statements in this report which are not historical
facts or information are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
levels of activity, performance or achievement of the Company, or
industry results, to be materially different from any future
results, levels of activity, performance or achievement expressed
or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business
strategy; the Company's ability to successfully identify new
business opportunities; changes in the industry; competition; the
effect of regulatory and legal proceedings; and other factors
discussed herein. As a result of the foregoing and other factors,
no assurance can be given as to the future results and achievements
of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these
statements.
Results of Operations
The three months ended March 31, 2000 compared to the three
months ended March 31, 1999
Consolidated revenues by business segment for the three months
ended March 31, 2000 and 1999 were as follows (in $000):
2000 1999
Electricity Generation $ - $ 31
Environmental Services 211 189
Subtotal 211 220
Intercompany (211) (136)
Net $ - $ 84
No consolidated net revenues for the three months ended March
31, 2000 were reported compared to $84,000 for the same period of
1999.
No revenues were reported from the operation which generates
electricity using methane gas as fuel for the three months ended
March 31, 2000. Revenues of $31,000 were reported from the
operation for the same period of 1999. The decline in revenue is
due to the Company's decision to forego repairing the
diesel/generating units pending the negotiations of an offer to
purchase the electricity generating operations. The electricity
generating facility consists of four diesel/generating units each
capable of generating approximately 48,000 kwh/day at full
capacity. Methane gas is a component of the landfill gas generated
by a landfill site owned by the Company. Engineering studies
indicate sufficient quantities of gas at the landfill to continue
the operation of the facility for approximately 12 years.
Electricity generated is sold pursuant to a long term contract with
a local utility. Revenues are a function of the number of kilowatt
hours sold, the rate received per kilowatt and capacity payments.
The Company sold 1.3 million kwh during the three months ended
March 31, 1999. See the discussion of "Liquidity and Capital
Resources" below for information regarding the lease of the
landfill gas generated at this site and the offer to purchase the
electricity generating operations.
The environmental services segment provides construction,
remedial and maintenance services at landfills, commercial and
industrial sites, and manages methane gas recovery operations. The
environmental services segment reported $211,000 of gross operating
revenues for the three months ended March 31, 2000 (prior to
elimination of intercompany sales) compared to $189,000 for the
period in 1999, an increase of 12%. All of the environmental
services segment's revenues for the period, compared to $136,000 or
72% for last year, were for services provided to other members of
the consolidated group and therefore eliminated in consolidation.
No third party sales were reported for the period in 2000, compared
to $53,000 for the period in 1999. The Company is continuing its
efforts to expand the customer base of this segment to entities
outside the consolidated group. In particular, the Company has
devoted significant time and has incurred professional fees during
1998, 1999 and 2000 in pursuit of a contract and state government
approval to perform the closure of a site in New Jersey. In the
event the Company is awarded the contract, the Company will seek
reimbursement of such professional fees, certain other contract
development expenses, and construction costs from a trust to be
established to finance the closure. However, there are no
assurances sufficient funds will be available for reimbursement of
such expenditures.
No consolidated direct operating costs were reported for the
three months ended March 31, 2000 compared to $74,000 reported for
the same period in 1999. The costs of the electricity generating
operation decreased for the three months ended March 31, 2000 when
compared to the same period in 1999 due to the Company's decision
to forego expenditures on the operation, repair and maintenance of
the electric generating equipment. No costs of the environmental
services segment were reported for the period in 2000 since all
such costs incurred related to work performed for other members of
the consolidated group and have been eliminated in consolidation.
Consolidated selling, general and administrative expenses for
the three months ended March 31, 2000 were $365,000, an increase of
$6,000 or 2% from $359,000 for the same period in 1999.
Significant professional fees and administrative costs continue to
be incurred in support of the Company's ongoing litigation,
business development and asset divestiture efforts (see "Liquidity
and Capital Resources - Liquidity").
The Company's consolidated operating loss for the three months
ended March 31, 2000 increased to $365,000 from a loss of $349,000
for the same period in 1999.
Consolidated investment income decreased by $10,000 to $29,000
for the three months ended March 31, 2000 from $39,000 for the
comparable period in 1999.
Consolidated interest expense for the three months ended March
31, 2000 was unchanged from the $1,000 reported for the same period
in 1999.
Interest reported as "Interest (expense) credit related to
income taxes payable" represents the increase or decrease in the
amount of interest accrued on estimated income taxes payable as a
result of the Company's tax litigation referred to below. Interest
expense for the three months ended March 31, 2000 equaled $83,000
versus $93,000 reported for the comparable period in 1999.
Consolidated miscellaneous income for the three months ended
March 31, 2000 decreased $14,000 to $23,000 when compared to the
$47,000 reported for the same period of 1999. Miscellaneous income
for the period in 1999 includes income of $35,000 in recognition of
a payment due from the former lessee of the landfill gas generated
at a landfill owned by the Company.
Miscellaneous income for the period in 2000 and 1999 includes
income of $2,500 and $7,500, respectively, in recognition of
royalty payments received from the lessee of certain of the
Company's real property situated beneath the lessee's landfill.
The payments are reported net of a fee payable pursuant to a
consulting agreement executed in 1982.
Consolidated net loss for the three months ended March 31,
2000 was $397,000 or $(.14) per share, compared to net loss of
$354,000 or $(.12) per share, for the three months ended March 31,
1999.
Liquidity and Capital Resources
Net cash used in operating activities for the three months
ended March 31, 2000 increased to a net use of $327,000 from a use
of $238,000 when compared to the same period of 1999 due primarily
to the decrease in cash received from customers and interest. Net
cash provided by investing activities increased for the three
months ended March 31, 2000 to $785,000 from $502,000 due primarily
to the maturity of investments. The use of cash in financing
activities decreased to $7,000 from $8,000 for the period last
year. Funds held by the Company in the form of cash and cash
equivalents increased as of March 31, 2000 to $925,000 from
$861,000. The sum of cash, cash equivalents and marketable
securities as of March 31, 2000 decreased to $1,360,000 from
$2,166,000 when compared to the same period of the prior year.
Working capital deficit was $(1.8) million as of March 31,
2000 and $(1.4) million as of December 31, 1999, and the ratio of
<PAGE>
current assets to current liabilities was .5 to 1 as of March 31,
2000 and 0.6 to 1 as of December 31, 1999.
THE COMPANY FACES SIGNIFICANT SHORT-TERM AND LONG-TERM CASH
REQUIREMENTS FOR (I) FEDERAL AND STATE INCOME TAX OBLIGATIONS
DISCUSSED BELOW AND IN THE NOTES TO THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999, MOST OF
WHICH WILL BECOME DUE FOLLOWING THE CONCLUSION OF THE TAX COURT
CASE WITH THE INTERNAL REVENUE SERVICE (THE "SERVICE") OF THE
COMPANY'S TAX LIABILITY FOR THE YEARS 1980 THROUGH 1991, (II)
FUNDING ITS PROFESSIONAL AND ADMINISTRATIVE COSTS, AND (III)
FUNDING REMEDIATION COSTS ASSOCIATED WITH SITES OF PAST OPERATIONS.
The Company has accrued $3.5 million through March 31, 2000
with respect to the federal and state income tax obligations. This
estimated amount exceeds the Company's currently liquid assets. In
addition, the Company's past participation in the waste handling
and disposal industries subjects the Company to future events or
changes in environmental laws or regulations, which cannot be
predicted at this time, which could result in material increases in
remediation and closure costs, and other potential liabilities that
may ultimately result in costs and liabilities in excess of its
available financial resources.
Although the Company continues to pursue the sale of assets
held for sale and claims against insurance carriers for recoveries
of past remediation costs, no assurance can be given that the
timing and amount of the proceeds from such sources will be
sufficient to meet the cash requirements of the Company as they
come due. In addition, the Company cannot ascertain whether its
remaining operations and funding sources will be adequate to
satisfy its future cash requirements, including its anticipated tax
liabilities. In the event of an unfavorable resolution of the
insurance litigation, or should the proceeds of asset sales be
insufficient to meet the Company's future cash requirements,
including its tax liabilities, then, if other alternatives are
unavailable at that time, the Company will be forced to consider a
plan of liquidation of its remaining assets, whether through
bankruptcy proceedings or otherwise.
<PAGE>
Taxes
As discussed in greater detail below, the Company has been
litigating with the Service in Tax Court over its tax liability for
taxable years 1980-88 and certain issues from taxable years 1989-
91. The Company has reached settlement agreements with the Service
as to all issues in the Tax Court litigation. The Company
estimates that, taking into account available net operating losses
and tax credits, as of March 31, 2000 approximately $904,000 of
federal income tax, $127,000 of state income tax and $2,482,000 of
federal interest (plus additional interest from March 31, 2000
forward), will be owed when a judgment is entered at the conclusion
of Tax Court litigation. (The tax liability estimates presented
herein exclude penalties. The Service has conceded all of the
penalties that it had asserted in the Tax Court litigation, but
state tax authorities may assert that penalties are due.)
In 1991, the Service asserted numerous adjustments to the tax
liability of the Company and its subsidiaries for tax years 1980
through 1988, along with interest and penalties thereon. In 1993,
after the conclusion of administrative proceedings, the Service
issued a deficiency notice to the Company. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. In 1994, the Company filed a petition with the Tax Court
contesting many of the adjustments asserted in the deficiency
notice. On June 5, 1995, August 14, 1995, March 7, 1996, July 31,
1996, January 22, 1998 and December 21, 1998, the Company and the
Service executed partial settlement agreements which have resolved
all of the adjustments asserted in the deficiency notice. These
settlements were subject to review by the Congressional Joint
Committee on Taxation, which approved the settlements in April
2000.
As a result of the settlements, the Company has accepted
approximately $5.9 million of the $33.3 million of total
adjustments to income asserted by the Service for the 1980-88
period. Many of the adjustments accepted by the Company relate to
issues on which the Service would likely have prevailed in Tax
Court. The Service has conceded adjustments totalling $27.4 million
of taxable income and $2.5 million of penalties.
Payment of the federal tax liability and the remaining state
tax liability will be due after judgment is rendered at the
conclusion of the Tax Court case. The $3.5 million of taxes and
estimated interest through March 31, 2000 that is owed by the
Company (plus additional interest accruing from March 31, 2000
until the obligations are settled) exceeds the Company's current
liquid assets (i.e., cash and marketable securities). The Company
and the Service are currently discussing the computation of the
amount of tax and interest owed as a result of the settlements.
Remediation and Closure Costs
As of March 31, 2000, the Company has accrued $11.1 million
for its estimated share of remediation and closure costs related to
the Company's former landfill and waste handling operations.
Approximately $9.0 million is held in trust and maintained by
trustees for the post-closure activities of one site located in
Deptford, New Jersey (see Note 6 to the Company's Consolidated
Financial Statements).
On December 23, 1997, the Company entered into four agreements
which settled lawsuits related to the allocation of costs of
remediation of the Kin-Buc Landfill,owned and operated by the
Company's subsidiary, Kin-Buc, Inc. ("Kin-Buc"). The Company and
other responsible parties including SCA Services, Inc. ("SCA"),
which is an affiliate of Waste Management, Inc. ("WMI"), have
provided funding for the continuing remediation of the Kin-Buc
Landfill, located in Edison, New Jersey, under an Amended
Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990. In
November 1992, EPA issued an Administrative Order for the
remediation of certain areas neighboring the Kin-Buc Landfill. The
Company initiated a suit in 1990 against generators and
transporters of waste deposited at a site with the intent of
obtaining contribution toward the cost of remediation. One of the
December 23, 1997 agreements provided an indemnification from SCA
to the Company which substantially relieved the Company from future
obligation with respect to the site.
In May 1997, EPA began an investigation of an area in the
vicinity of the Kin-Buc Landfill known as Mound B. In May 1998,
the final plan of this investigation was completed, and in February
1999, the Company received a copy of a letter sent from EPA to SCA
informing SCA that EPA has concluded that hazardous materials were
disposed of in Mound B. The letter also instructed SCA to provide
EPA with work plans to address conditions at the mound. During
February, 2000 EPA sent the Company a request for information to
which the Company is preparing a response.
During July 1999, counsel to the Company was contacted by EPA
regarding a Piscataway, New Jersey site owned by Tang Realty, Inc.
("Tang"). Tang is a corporation controlled by Marvin H. Mahan, a
former director, officer and principal shareholder of the Company.
EPA is performing remediation at the site and had requested
information from approximately 100 potentially responsible parties
concerning their involvement with the Tang site. Transtech had no
direct involvement with EPA since October 1990 and had not been the
recipient of an EPA request for information. The July 1999 inquiry
set forth EPA's concern that the statute of limitations on any
claim EPA may have against the Company with respect to the site
would expire during August 1999. In consideration for EPA's
agreement to defer the filing of a claim against the Company prior
to the expiration of such statute of limitations, the Company
agreed to enter into an agreement to extend the statute of
limitations for a period of three months. In November 1999,
February 2000 and May 2000 EPA and the Company agreed to extend the
statute an additional three months. During this period, EPA and
the Company are to continue discussions of any potential claims
EPA may be contemplating against the Company with respect to the
site, and the amount of contribution EPA believes such claims may
warrant toward EPA's estimated $2.4 million of unallocated
remediation costs associated with the site. Pursuant to a 1988
agreement with Tang, in 1988, 1989 and 1990 Transtech spent
approximately $4.3 million toward the remediation of the site.
Assets Held for Sale/Claims for Past Remediation Costs
Assets held for sale consist primarily of real estate which is
carried at a cost of $1,312,000 as of March 31, 2000. The real
estate included in this category consists of approximately 430
acres located in Deptford, N.J. (including approximately 100 acres
upon which the landfill owned and operated by the Company's
subsidiary Kinsley's Landfill, Inc. ("Kinsley's") is situated).
The Company is actively pursuing the disposition of such property.
However, based upon market conditions for real estate of this type
the Company is unable to determine when such sale(s) will
ultimately be consummated.
In 1995, the Company commenced suit against its excess
insurers during the period 1965 through 1986 to obtain a recovery
of past costs and indemnification for future costs incurred in
connection with the remediation of the Kin-Buc Landfill, a site
located in Piscataway, N.J., and for the defense of litigation
related thereto. The defendant insurers, which include various
London and London Market insurance companies, First State Insurance
Company and International Insurance Company. During June 1999, the
Company and First State entered into an agreement pursuant to which
the Company agreed to accept $250,000 in satisfaction of its
current and potential future claims with respect to environmental
contamination as defined in such agreement. The remaining
defendants have answered the complaint against them and discovery
has substantially concluded. Further proceedings have been stayed
pending the outcome of settlement negotiations. Some of the London
and London Market insurance companies that participated in the
policies held by the Company are insolvent. The estates of some of
these insolvent companies have sufficient assets to make a partial
contribution toward claims filed by the Company. During August
1999 the Company received approximately $35,000 in satisfaction of
its claims against the estate of an insolvent excess insurance
carrier. In September 1995, the Company assigned its claims
related to a site located in Carlstadt, New Jersey in conjunction
with a settlement of the litigation regarding such site as
discussed below. The Company also committed a portion of the
proceeds, if any, arising from this excess carrier litigation be
paid to WMI in conjunction with the settlement of the litigation
related to the Kin-Buc Landfill as discussed above, and to legal
counsel representing the Company in the suit. All of the policies
of excess insurance issued by the defendant insurers cover
Transtech, its present subsidiaries and former subsidiaries, some
of which Transtech no longer controls. Certain companies presently
or formerly owned or controlled by a former principal shareholder,
director and officer of the Company are also covered, however such
parties assigned their rights as holders and claimants under these
policies to the Company in October 1998.
<PAGE>
The Company can not assure that the timing and amount of the
net proceeds from the sale of such assets held for sale and the
successful litigation or settlement of the insurance claims will be
sufficient to meet the cash requirements of the Company discussed
above.
Gas Lease and Electricity Generating Equipment
On June 30, 1998 Kinsley's entered into two agreements with
respect to its electricity generation operations. Pursuant to a
Gas Lease and Easement Agreement (the "Gas Lease"), Kinsley granted
to Deptford Gas Company, LLC ("DGC") the exclusive right to extract
and utilize all gas produced at the landfill site for an initial
lease term of 12 years with provisions for two 5 year extensions.
Pursuant to a landfill gas sale agreement (the "Gas Sale
Agreement") Kinsley had agreed to purchase gas from DGC for $.10
per million BTU's of gas. This Gas Sale Agreement was to terminate
upon the expiration of the Gas Lease or Kinsley's sale of its
electric generators.
In addition, in connection with the above agreements, during
December 1998, Kinsley entered into separate agreements with DGC,
or entities affiliated with DGC for (i) the operation and
maintenance by Kinsley's of the gas collection system for the
benefit of DGC, (ii) the sale by Kinsley's of its electricity
generating operation, (iii) the operation and maintenance by
Kinsley's of the electricity generating equipment, (iv) processing
of Kinsley's leachate and (v) the operation and maintenance by
Kinsley's of the leachate processing equipment. The agreements
relating to the sale and operation and maintenance of the
electricity generating equipment were contingent upon, among other
things, the buyer obtaining financing. The agreement regarding the
sale of the electricity generating equipment expired May 28, 1999,
in accordance with its terms. The Company and buyer continued
discussions beyond May 1999, but failed to reach agreement on a
transaction similar to that originally contemplated, therefore
during January, 2000 the Company voided all agreements with DGC and
its affiliates including the Gas Lease. The Company is evaluating
several options with respect to the future operation of the
facility.
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a party to pending legal proceedings, all of
which have been reported in the Company's Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1999. Reference is made
thereto for a description of such litigation, and to the discussion
contained in Part I, Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources of this Form 10QSB.
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION, Cont'd
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
NONE
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
Date: May 15, 2000 By: /s/ Robert V. Silva
Robert V. Silva, President
and Chief Executive Officer
and
Date: May 15, 2000 By: /s/ Andrew J. Mayer, Jr.
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer and Secretary
<PAGE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
11 Computation of Earnings (Loss) Per Common Share 27
27 Financial Data Schedule N/A
Exhibit 11. Computation of Net Income (Loss) Per Share.
<TABLE>
TRANSTECH INDUSTRIES, INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<CAPTION>
For the Three Months Ended
March 31,
BASIC: 2000 1999
<S> <C> <C>
Weighted Average Common Shares
Outstanding 2,829,190 2,829,190
Net Income (Loss) $ (397,000) $ (354,000)
Basic Net Income (Loss)
Per Common Share:
Net Income (Loss) per share $(.14) $(.12)
DILUTED:
Weighted Average Common
Shares Outstanding 2,829,190 2,829,190
Dilutive Stock Options Based
Upon the Treasury Stock
Method - -
2,829,190 2,829,190
Net Income (Loss) $ (397,000) $ (354,000)
Diluted Net Income (Loss)
Per Common Share:
Net Income (Loss) Per Share $(.14) $(.12)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRANSTECH
INDUSTRIES, INC'S QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 925
<SECURITIES> 435
<RECEIVABLES> 215
<ALLOWANCES> 2
<INVENTORY> 0
<CURRENT-ASSETS> 2019
<PP&E> 2899
<DEPRECIATION> 2825
<TOTAL-ASSETS> 4451
<CURRENT-LIABILITIES> 3861
<BONDS> 0
0
0
<COMMON> 2357
<OTHER-SE> (3862)
<TOTAL-LIABILITY-AND-EQUITY> 4451
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 365
<OTHER-EXPENSES> (31)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1)
<INCOME-PRETAX> (397)
<INCOME-TAX> 0
<INCOME-CONTINUING> (397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (397)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
