1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
FOR THE PERIOD ENDED MAY 31, 1997
OR
___ Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 0-26774
TST/IMPRESO, INC.
(exact name of registrant as specified in its charter)
DELAWARE 75-1517936
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
652 SOUTHWESTERN BOULEVARD
COPPELL, TEXAS 75019
(Address of principal executive offices)
TELEPHONE NUMBER (214) 462-0100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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
--- ---
Indicate the number of shares outstanding of each of the issurer's classes of
Common Stock as of the latest practical date.
Class of Common Stock Shares outstanding at July 9, 1997
$ .01 Par Value 5,284,330
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TST/IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
MAY 31, 1997
INDEX
PART 1. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of May 31,
1997 (Unaudited) and August 31, 1996 . . . . . . 2
Interim Consolidated Statements of Operations for the
Nine Months Ended May 31, 1997, and May 31, 1996
(Unaudited) . . . . . . . . . . . . . . . 4
Interim Consolidated Statements of Cash Flows for the
Nine Months Ended May 31, 1997, and May 31, 1996
(Unaudited) . . . . . . . . . . . . . . 5
Notes to Interim Consolidated Financial Statements . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 12
PART II. OTHER INFORMATION
Item 1: Legal Proceedings . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K. . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 19
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PART ONE: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
May 31, August 31,
1997 1996
------------ ------------
Current assets: $ 2,731,609 $ 2,368,395
Cash and cash equivalents
Trade accounts receivable, net of allowance for doubtful accounts
of $130,000 at May 31, 1997 and $163,633 at August 31, 1996 3,394,145 2,890,411
Investments -- 250,000
Inventories 6,371,885 6,343,731
Prepaid expenses and other 679,079 301,731
------------ ------------
Total current assets 13,176,718 12,154,268
------------ ------------
Property, plant and equipment, at cost 12,883,755 12,465,865
Less-Accumulated depreciation (8,683,848) (8,372,733)
------------ ------------
Net property, plant and equipment 4,199,907 4,093,132
------------ ------------
Other assets:
Deposits and other 35,852 708,751
Investments 4,954 4,954
------------ ------------
Total assets $ 17,417,431 $ 16,961,105
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED BALANCE SHEETS.
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TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS- (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
May 31, August 31,
1997 1996
------------ ------------
Current liabilities:
Accounts payable $ 769,834 $ 1,563,662
Accrued liabilities 219,539 239,886
Accrued bonuses -- 175,000
Accrued income taxes 40,000 69,235
Current maturities of long-term debt 4,271 36,769
Line of credit 1,912,705 138,391
Prepetition liabilities-
Current maturities of prepetition taxes payable 25,722 25,722
Current maturities of long-term debt 74,102 74,975
------------ ------------
Total current liabilities 3,046,173 2,323,640
Deferred income tax liability 565,413 567,618
Long-term portion of prepetition debt, net of current maturities 1,008,227 1,088,480
Long-term debt, net of current maturities -- 3,309
------------ ------------
Total liabilities 4,619,813 3,983,047
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized; 0 shares issued
and outstanding at May 31, 1997 and August 31, 1996 -- --
Common Stock, $.01 par value; 15,000,000 shares authorized; 5,261,330 shares
issued and outstanding at May 31, 1997 and 5,247,730 at August 31, 1996 52,613 52,477
Warrants 110 110
Additional paid-in capital 6,019,735 5,937,896
Retained earnings 6,725,160 6,987,575
------------ ------------
Total stockholders' equity 12,797,618 12,978,058
------------ ------------
Total liabilities and stockholders' equity $ 17,417,431 $ 16,961,105
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED BALANCE SHEETS.
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TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
May 31, May 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales $ 8,898,308 $ 11,745,855 $ 26,470,200 $ 37,070,993
Cost of sales 8,134,777 9,269,941 23,462,472 29,481,558
------------ ------------ ------------ ------------
Gross profit 763,531 2,475,914 3,007,728 7,589,435
------------ ------------ ------------ ------------
Other costs and expenses:
Selling, general and administrative 1,019,770 1,108,464 3,125,405 3,363,605
Interest expense 87,493 74,003 186,495 335,573
Other (income) expense, net (89,693) 19,319 (180,177) 55,355
------------ ------------ ------------ ------------
Total other costs and expenses 1,017,570 1,201,786 3,131,723 3,754,533
------------ ------------ ------------ ------------
Income (loss) before income tax expense and extraordinary gain (254,039) 1,274,128 (123,995) 3,834,902
Income tax expense:
Current 105,456 424,964 140,625 1,324,308
Deferred (16,024) 7,057 (2,205) 22,937
------------ ------------ ------------ ------------
Income (loss) before extraordinary gain (343,471) 842,107 (262,415) 2,487,657
Extraordinary gain from debt reduction and restructuring
due to bankruptcy, net of tax effect of $159,377 -- -- -- 294,430
------------ ------------ ------------ ------------
Net income (loss) $ (343,471) $ 842,107 $ (262,415) $ 2,782,087
============ ============ ============ ============
Income (loss) per share (primary and fully diluted);
Income (loss) before extraordinary gain $ (0.07) $ 0.16 $ (0.05) $ 0.49
Extraordinary gain -- -- -- 0.06
------------ ------------ ------------ ------------
Net income (loss) per common share $ (0.07) $ 0.16 $ (0.05) $ 0.55
============ ============ ============ ============
Weighted average shares outstanding 5,261,330 5,247,730 5,261,330 5,038,141
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
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TST IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
May 31, May 31,
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (262,415) $ 2,782,087
Adjustments to reconcile net income (loss) to net cash flow provided
by operating activities-
Extraordinary gain -- (294,430)
Depreciation and amortization 311,115 273,749
Deferred income taxes (2,205) 22,937
(Increase) decrease in accounts receivable, net (503,734) (22,177)
(Increase) decrease in inventories (28,154) 465,744
(Increase) decrease in prepaid expenses and other (377,348) (41,392)
Increase (decrease) in accounts payable (793,828) 149,437
Increase (decrease) in accrued liabilities (20,347) 21,019
Increase (decrease) in accrued bonuses (175,000) (482,539)
Increase (decrease) in accrued income taxes (29,235) (69,651)
------------ ------------
Net cash provided by (used in) operating activities (1,881,151) 2,804,784
============ ============
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (417,890) (638,732)
Sale of investments 250,000 --
Change in other noncurrent assets, net 672,899 130,529
------------ ------------
Net cash provided by (used in) investing activities 505,009 (508,203)
============ ============
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowing (payments) on line of credit 1,774,314 (3,415,016)
Payments on prepetition debt (81,126) (2,834,807)
Payments on postpetition debt, net (35,807) (61,992)
Sale of Common Stock and warrants 81,975 5,977,475
------------ ------------
Net cash provided by (used in) financing activities 1,739,356 (334,340)
============ ============
NET INCREASE IN CASH AND CASH EQUIVALENTS: 363,214 1,962,241
Cash and cash equivalents, beginning of period 2,368,395 92,081
------------ ------------
Cash and cash equivalents, end of period $ 2,731,609 $ 2,054,322
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
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TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
TST/Impreso, Inc., a Delaware corporation, is a manufacturer and
distributor to dealers and other resellers of paper products in
domestic and international markets for commercial and home use. The
Company's product line consists of standard continuous computer stock
business forms for use in computer printers; facsimile paper for use
in thermal facsimile machines, and cut sheet paper for use in copying
machines, laser printers, and ink jet printers. TST/Impreso, Inc. has
three wholly owned subsidiaries: Big Time Paper, Inc., TST/Impreso of
California, Inc., and Texas Stock Tab of West Virginia, Inc. Each
subsidiary was formed to support activities of TST/Impreso, Inc.
(referred to collectively with its consolidated subsidiaries as the
"Company").
In April 1993, the Company emerged from a Chapter 11 bankruptcy
proceeding instituted by it in November 1992. The filing was
primarily due to the Company's inability to renegotiate its line of
credit agreement with its primary lender regarding amounts owed to the
lender under the Company's guarantee of indebtedness for a subsidiary
operating as a business consumable wholesaler in which the Company had
a majority interest. The subsidiary was simultaneously liquidated in a
Chapter 7 bankruptcy.
2. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the interim unaudited Consolidated
Financial Statements of the Company include all adjustments,
consisting of any normal recurring adjustments, necessary for a fair
presentation of the Company's financial position as of May 31, 1997,
and its results of operations for the three and nine months ended May
31, 1997, and May 31, 1996. Results of the Company's operations for
the interim period ended May 31, 1997, may not be indicative of
results for the full fiscal year. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations promulgated
by the Securities and Exchange Commission (the "SEC").
The interim unaudited Consolidated Financial Statements should be read
in conjunction with the audited Consolidated Financial Statements and
accompanying notes of the Company and its subsidiaries, included in
the Company's Form 10-K (the "Company's Form 10-K") for the fiscal
year ended August 31, 1996, File Number 0-26774. Accounting policies
used in the preparation of the interim unaudited Consolidated
Financial Statements are consistent in all material respects with the
accounting policies described in the Notes to Consolidated Financial
Statements in the Company's Form 10-K.
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3. NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, "Accounting for Stock- Based Compensation, "
which requires entities to measure compensation costs related to
awards of stock-based compensation using either the fair value method
or the intrinsic method value method. Under the fair value method,
compensation expense is measured at the grant date based on the fair
value of the award. Under the intrinsic value method, compensation is
equal to the excess, if any, of the quoted market price of the stock
at the grant date over the amount the employee must pay to acquire the
stock. Entities electing to measure compensation costs using the
intrinsic value method must make pro forma disclosures for fiscal
years beginning after December 15, 1995, of net income and earnings
per share as if the fair value method had been applied. The Company
has elected to account for stock-based compensation programs using the
intrinsic value method consistent with existing accounting policies
and, therefore, the standard will have no effect on the consolidated
financial statements. The required pro forma disclosures will be
adopted by the Company for the Company's fiscal year ending August 31,
1997.
4. UTILIZATION OF IPO PROCEEDS
In the fiscal year ended August 31, 1996, the Company recorded net
proceeds of $5.9 million on the sale of 1,247,730 shares of Common
Stock in the Company's Initial Public Offering ("IPO"). The Company
utilized $4.9 million to repay indebtedness. In the three months ended
February 29, 1996, part of the proceeds were applied to a secured
prepetition note, prepaid at a discounted amount, resulting in an
extraordinary gain, and the Company applied 65% of the proceeds to
reduce the Company's utilization of its revolving line of credit. The
remaining proceeds were used for working capital purposes.
5. EXTRAORDINARY ITEM
In the nine months ended May 31, 1996, the Company recorded an
extraordinary gain totaling $294,000, net of related income tax
expense of $159,000. The extraordinary gain resulted from the
Company's early extinguishment of a prepetition note payable for a
discounted amount.
6. INVENTORIES
Inventories are stated at the lower of cost (principally on a
first-in, first-out basis) or market and include material, labor, and
factory overhead.
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Inventory consisted of the following:
May 31, August 31,
---------- ----------
1997 1996
---------- ----------
Finished goods $3,556,180 $3,642,869
Raw materials 2,404,617 2,296,347
Supplies 372,910 351,909
Work-in-process 38,178 52,606
---------- ----------
Total inventories $6,371,885 $6,343,731
---------- ----------
7. DEBT
Debt as of May 31, 1997, and August 31, 1996, is as follows:
May 31, August 31,
---------- -----------
1997 1996
---------- -----------
Postpetition-
Note payable to a commercial financial corporation under
revolving credit line maturing May 1998, secured by
inventory, trade accounts receivable, equipment, and
a personal guarantee by the trustee of a trust which is the
largest single shareholder, interest payable monthly at prime
plus 1.00% (9.50% at May 31,1997, and 9.25% at
August 31, 1996) $1,912,705 $ 138,391
Note payable to a commercial financial corporation, payable
in 48 monthly installments, secured, interest at 9.9%, and
maturing in July 1998 4,271 40,078
Prepetition-
Prepetition taxes payable 51,444 77,165
Note payable to a bank, secured by property, payable in monthly
installments of $4,815 (including interest at 6%) through May
2000, at which time the remaining balance becomes
due and payable 595,473 611,926
Other notes payable, approximately $450,000, are secured by a
personal guarantee by the trustee of a trust which is the largest
single shareholder, and certain property, plant, and equipment,
with various maturity dates through 2023, and interest rates
ranging from 4% to 10.5% 461,134 500,086
---------- -----------
Total 3,025,027 1,367,646
---------- -----------
Less-Current maturities 2,016,800 275,857
---------- -----------
$1,008,227 $ 1,091,789
---------- -----------
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Prepetition amounts listed above represent the renegotiated amounts
and terms under the plan of reorganization. The postpetition line of
revolving credit is shown above as a current maturity.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Nine Months Ended Nine Months Ended
May 31, 1997 May 31, 1996
--------------------------------------
Cash paid during the period for:
Interest $ 186,495 $ 335,573
Income taxes 100,625 1,553,336
9. STOCK OPTIONS AND WARRANTS
During the quarter ended November 30, 1995, the Company granted
293,800 options to certain employees, an outside Director, and a
consultant under its 1995 Stock Option Plan (the "Plan"). These
options were granted at an exercise price of $6.00 per share, the fair
market value at the date of grant. These options will become
exercisable at various dates beginning in April 1996, through April
1999. Thirty-six hundred of those options were forfeited during the
1996 fiscal year, 1,350 of those options were forfeited during the
quarter ended November 30,1996, and 450 of those options were
forfeited during the quarter ended February 28,1997. No options were
forfeited during the quarter ended May 31, 1997.
On January 2, 1996, the Company elected two new outside Directors to
its Board of Directors. In accordance with the Plan, each Director
received an automatic grant of an option for 1,000 shares of Common
Stock. These options were granted at the fair market value at the date
of grant with an exercise price of $6.75 per share and are exercisable
in two equal annual installments.
On October 1, 1996, an officer of the Company was granted an option
for 15,000 shares of Common Stock. These options were granted at the
fair market value at the date of grant with an exercise price of
$5.375 per share and are exercisable in accordance with the Plan
beginning on April 1, 1997.
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On January 29, 1997, the three outside Directors received their
automatic grants of an option for 1,000 shares of Common Stock. These
options were granted at fair market value at the date of grant with an
exercise price of $8.375 per share and are exercisable in accordance
with the Plan beginning on January 29, 1998.
In May 1997, two employees were granted options for a total of 9,500
shares of Common Stock, 3,000 of these options were granted at fair
market value at the date of grant, May 14, 1997, with an exercise
price of $12.75 per share, and 6,500 of these options were granted at
fair market value at the date of grant, May 20, 1997, with an exercise
price of $10.375 per share. The 3,000 options granted on May 14, 1997,
vest in accordance with the plan, but are restricted from sale until
November 14, 1998. The 6,500 options granted on May 20, 1997, are
exercisable in accordance with the Plan beginning on November 20,
1997.
As of May 31, 1997, 13,600 of the options granted under the plan were
exercised. This number includes 4,700 exercises that were exercised
during the Third Quarter, but are not reflected on the transfer agent
records until the Fourth Quarter due to electronic share transfers.
The $81,975 due to the Company for stock issued as a result of the
exercise of these options was received in June 1997, and has been
included in other current assets as of May 31, 1997.
As of May 31,1997, 317,900 options were granted under the Plan, of
which 135,350 are currently exercisable. Remaining options available
for grant under the Plan, including all forfeited options, total
82,100.
In addition to options under the Plan, in October 1995, in connection
with the Company's IPO, the Company granted an option to purchase up
to 147,730 shares of Common Stock (over-allotment option) to its
Underwriters at $6.00 per share. The option was exercised in full on
November 14, 1995.
Also in connection with the Company's IPO, the Company issued warrants
to its Underwriters for $.001 per warrant to purchase an aggregate of
110,000 shares of Common Stock. The warrants became exercisable on
October 5, 1996, for four years at an exercise price of $7.20 per
share.
Subsequent to the IPO, the Company issued warrants to two consultants.
One warrant for 10,000 shares of Common Stock was granted at an
exercise price of $7.20 per share, which was above fair market value
on the date of grant, and is exercisable for a period of five years
from December 1, 1995. The other warrant, also for 10,000 shares of
Common Stock, was granted at an exercise price of $6.60 per share,
which was above fair market value on the date of grant, and became
exercisable October 5, 1996, for a period of four years.
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On April 7, 1997, the Company filed a Registration Statement on Form
S-8 with the Securities and Exchange Commission to register the
400,000 shares of Common Stock issuable on exercise of options granted
under the Company's 1995 Stock Option Plan.
10. EMPLOYEE 401(k) PLAN
In February 1996, the Company implemented an employee 401(k) plan. The
plan is administered by a national brokerage firm and administrative
fees associated with the plan are funded by the plan. The Company is
matching 5% of up to 10% of the participating employees' deductible
contributions to their 401(k) accounts. Contributions by the Company
were $11,107 and $9,500 for the nine months ended May 31, 1997, and
the year ended August 31, 1996, respectively.
11. EARNINGS PER COMMON SHARE
Earnings per share is based on the weighted average number of common
shares outstanding. Common share equivalents have not been included in
the computation of earnings per share for the periods ended May 31,
1996, as the dilution of these equivalents is not considered material.
Common share equivalents have not been included in the computation of
earnings per share for the periods ended May 31, 1997, as the effect
of these equivalents would be anti-dilutive.
12. SUPPLEMENTAL EARNINGS PER SHARE DATA
In October 1995, the Company's registration statement on Form S-1
filed with the SEC was declared effective for the sale of 1,247,730
shares (including over-allotment option shares) at $6.00 per share.
The unaudited supplemental earnings per share data has been calculated
assuming the IPO occurred as of the beginning of the period.
Nine Months Ended
May 31, 1996
-----------------
Supplemental income (loss) per share (primary and
fully diluted):
Income (loss) before extraordinary gain $ .47
Extraordinary gain .06
-----
Net income (loss) per common share $ .53
-----
Supplemental weighted average shares outstanding 5,247,730
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13. SIGNIFICANT CONTRACT
The Company entered into a non-exclusive Trademark Licensing Agreement
with International Business Machines Corporation ("IBM") on April 30,
1997. The agreement is for a term of four years with two automatic one
year extensions subject to earlier termination under certain
conditions, and provides that the Company will manufacture and
distribute products branded with IBM Licensed Marks in exchange for
specified payments. The Company has agreed to maintain certain quality
standards and is required to meet mutually agreed upon sales volume
objectives in the manufacture and sale of IBM branded products.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED MAY 31, 1997 AND
MAY 31, 1996
Net Sales---Net sales for the three months ended May 31, 1997,
decreased $2.8 million, or 24%, as compared to the corresponding
period of the prior year. Net sales for the nine months ended May 31,
1997, decreased $11 million, or 28.6% as compared to the corresponding
period of the prior year. These decreases were due to decreases in the
selling prices of the Company's products combined with depressed
market conditions resulting in reduced sales volume. One customer
represented 21% of the Company's revenues during the nine months ended
May 31, 1996. No customer represented a significant portion of the
Company's revenues during the nine months ended May 31, 1997.
Gross Profit---Gross profit for the three months ended May 31, 1997,
decreased $1.7 million, or 69%, as compared to the corresponding
period of the prior year. Gross profit for the nine months ended May
31, 1997, decreased $4.6 million, or 60%, as compared to the
corresponding period of the prior year. The decreased gross profit was
primarily the result of decreased sales and decreased margins. As a
result of decreased gross profit and net sales, the Company's gross
profit margin decreased to 8.6% for the three month period ended May
31, 1997, as compared to 21% of the corresponding period of the prior
year, and to 11% for the nine months ended May 31, 1997, as compared
to 20% of the corresponding period of the prior year, as a result of
decreases in the selling prices of the Company's products without a
corresponding decrease in raw material costs.
During the Company's Second and Third Quarter demand for the products
manufactured by the Company declined at a rapid pace. As a result, the
Company had to lower its selling prices on products to customers which
resulted in decreased gross profit and net income for the Third
Quarter. At the end of the Third Quarter prices for those products
stabilized. Management believes the decreases in the product selling
prices will not
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continue on the downward trend. The Company has implemented price
increases in the Fourth Quarter. However, there can be no assurance
that the Company will be profitable in the Fourth Quarter.
Selling, General, and Administrative Expenses---SG&A expenses for the
three months ended May 31, 1997, were $1 million, or 11.5% of net
sales, as compared to $1.1 million, or 9.4% of net sales, for the
corresponding period of the prior year. SG&A expenses for the nine
months ended May 31, 1997, were $3.1 million, or 11.8% of net sales,
as compared to $3.4 million, or 9.1% for the corresponding period of
the prior year. SG&A expenses, although slightly reduced in the 1997
periods, remained approximately constant in dollars, but increased as
a percentage of net sales during these periods because of the
decreased net sales in relation to fixed operating expenses.
Interest Expense---Interest expense for the three months ended May 31,
1997, was $87,000 as compared to $74,000 for the corresponding period
of the prior year. Interest expense for the nine months ended May 31,
1997, was $186,000 as compared to $336,000 for the corresponding
period of the prior year. The increase in interest expense for the
three months ended May 31, 1997, was due to increased borrowings under
the Company's Line of Credit. The decrease in the interest expense for
the nine month period ended May 31, 1997, as compared to the
corresponding period of the prior year were primarily attributable to
a lower interest rate on, and the pay- down of, the Company's
revolving line of credit and the early extinguishment of a prepetition
note payable .
Income (loss) before taxes and extraordinary gain---Income (loss)
before taxes and extraordinary gain for the three months ended May 31,
1997, was ($343,000) as compared to $842,000 for the corresponding
period of the prior year, a decrease of $1.2 million or 141%. Income
(loss) before taxes and extraordinary gain for the nine months ended
May 31, 1997, was ($262,000) as compared to $2.5 million for the
corresponding period of the prior year, a decrease of $2.8 million, or
111%. These decreases were primarily due to a lower sales volume
because of market conditions and decreases in unit selling prices of
the Company's products without a corresponding reduction in raw
material costs.
Extraordinary Gain---The Company did not record an extraordinary gain
for the nine months ended May 31, 1997, as compared to an
extraordinary gain totalling $294,000, net of related income tax
expense of $159,000, for the corresponding period of the prior year.
The prior year gain resulted from the Company's early extinguishment
of a prepetition note payable for a discounted amount.
Income Taxes---The Company's provision for income taxes was $89,000
for the three months ended May 31, 1997, as compared to $432,000 for
the corresponding period of the prior year. The Company's provision
for income taxes was $138,000 for the nine months ended May 31, 1997,
as compared to $1.3 million for the corresponding period of
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the prior year. The effective tax rate for the nine months ended May
31, 1996, was 35.1%. The provision for the nine months ended May 31,
1997, primarily relates to state income taxes.
Liquidity and Capital Resources
Net cash used in operating activities was $1.9 million for the nine
months ended May 31, 1997, as compared with $2.8 million provided by
operating activities for the corresponding period of the prior year.
The increase in the Company's net cash used in operating activities
for the nine months ended May 31, 1997, primarily related to decreases
in accounts payable, increases in accounts receivable, and increases
in prepaid and other. The Company's inventories during the nine months
ended May 31, 1997, have remained at approximately the same level as
year ended August 31, 1996.
Net cash provided by investing activities was $505,000 for the nine
months ended May 31, 1997, as compared with $508,000 used in investing
activities for the corresponding period of the prior year. The
increase in the Company's net cash provided by investing activities
primarily related to the decrease in other current assets.
Net cash provided by financing activities was $1.7 million for the
nine months ended May 31, 1997, as compared with $334,000 used in
financing activities for the corresponding period of the prior year.
The increase in cash provided by financing activities primarily
related to an increase in the Company's borrowings under its revolving
line of credit to $1.9 million at May 31, 1997, from $138,000 at
August 31, 1996. The Company utilized its revolving line of credit to
meet operating expenditures due to the lack of funds available from
net profits.
Working capital increased to $10 million at May 31, 1997, from $9.8
million at August 31, 1996, an increase of 3%, primarily attributable
to an increase in accounts receivable, prepaid expenses, and decreases
in accounts payable.
In the fiscal year ended August 31, 1996, the Company recorded net
proceeds of $5.9 million on the sale of 1,247,730 shares of Common
Stock in the Company's IPO. The Company utilized $4.9 million to repay
indebtedness. In the three months ended May 31, 1996, part of the
proceeds were applied to repayment of a secured prepetition note,
prepaid at a discounted amount, resulting in an extraordinary gain.
The Company applied 65% of the proceeds to reduce the Company's
utilization of its revolving line of credit.
The availability of the revolving credit line was $3,087,000 as of May
31, 1997, and 4,862,000 as of August 31, 1996, respectively.
In May 1996, the Company entered into an agreement with a bank for a
one year, secured, revolving line of credit, which is secured by,
among other things, inventory, trade
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receivables, equipment and a personal guarantee of Mr. Sorokwasz,
Chairman of the Board and President of the Company, and Trustee of the
trust which is the largest single shareholder of the Company.
Available borrowings under this line of credit, which accrues interest
at the prime rate of interest plus 1% (9.5% at May 31, 1997), are
based upon specified percentages of eligible accounts receivable and
inventories. As of May 31, 1997, there was a $3 million borrowing
capacity remaining under the $5 million revolving line of credit. The
revolving credit line, which matured in May 1997, has been
automatically renewed under identical terms until May 1998.
The Company entered into a non-exclusive Trademark Licensing Agreement
with IBM on April 30, 1997. The agreement is for a term of four years
with two automatic one year extensions, and provides that the Company
will manufacture and distribute products branded with IBM Licensed
Marks in exchange for specified payments. The Company has agreed to
maintain certain quality standards and is required to meet mutually
agreed upon sales volume objectives in the manufacture and sale of IBM
branded products. The Company expects that sales of IBM Brand Paper
will substantially increase Company sales. However, there can be no
assurance that such increased sales will occur or, if they occur, be
profitable.
The Company recently ordered state-of-the-art equipment specifically
designed for the sheeting of papers with specialty surfaces (e.g.,
glossy papers, photo papers, transparencies, etc.) which are highly
sensitive to scratches or marring. This new sheeting machine will
complement three high-speed sheeters which have been installed at the
Company's plants during the past eighteen months and will enhance the
Company's production capabilities as it begins supplying paper under
its new trademark licensing agreement with IBM. The Company has also
purchased a slitting machine for installation in July 1997. This
machine will be dedicated primarily to the production of facsimile and
adding machine rolls for the IBM branded product line. In June 1997,
deposits were made on the equipment totaling approximately $195,000.
The expected cost of the equipment will total approximately $726,000.
The Company believes that the funds available under the revolving
credit line facility, cash and cash equivalents, trade credit, and
internally generated funds will be sufficient to satisfy the Company's
requirements for working capital and capital expenditures for at least
the next twelve months. Such belief is based on certain assumptions,
including the continuation of current operations of the Company and no
extraordinary adverse events, and there can be no assurance that such
assumptions are correct. In addition, expansion which may be required
as a result of the contract between the Company and IBM may require
the Company to obtain additional capital to pursue an acquisition or
for the addition of new manufacturing facilities. If that should
occur, the funds required for the potential acquisition or new
facilities would be generated through additional security offerings or
additional debt. There can be no assurance that any additional
financing will be available if needed, or, if available, will be on
terms acceptable to the Company.
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Inventory Management
The Company believes that it is necessary to maintain a large
inventory of finished goods and raw materials to adequately service
its customers. The Company attempts to maintain a minimum of $6.0
million in inventory. The Company bears the risk of increases in the
prices charged by its suppliers, and decreases in the prices of raw
materials held in its inventory or covered by purchase commitments. If
prices for products held in the finished goods inventory of the
Company decline or if prices for raw materials required by the Company
decline, or if new technology is developed that renders obsolete
products distributed by the Company and held in inventory, the
Company's business could be materially adversely affected.
Market Conditions
During the Company's Second and Third Quarter demand for the products
manufactured by the Company declined at a rapid pace. As a result, the
Company had to lower its selling prices on products to customers which
resulted in decreased gross profit and net income for the Third
Quarter. At the end of the Third Quarter prices for those products
stabilized. Management believes the decreases in the product selling
prices will not continue on the downward trend. The Company has
implemented price increases in the Fourth Quarter. However, there can
be no assurance that the Company will be profitable in the Fourth
Quarter.
Manufacturing Capacity
The previous and current acquisition of new equipment (see the
Company's Form 10-Q for the period ended February 28, 1997) will
substantially increase the Company's manufacturing capacity. The
Company expects that this increased capacity will be absorbed as the
Company begins manufacturing and selling IBM branded products.
Seasonality
The Company generally experiences a relative slowness in sales during
the summer months. This has affected the Company's Third Quarter
results, and may adversely affect the Company's Fourth Quarter results
in relation to sequential quarter performance.
Inflation
The Company believes that inflation has not had a significant impact
on the Company's operations. Historically, the Company has been
successful in transferring to its customers increases in its
manufacturing and other costs resulting from inflation by means of
price increases.
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Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and the
Results of Operations, and other sections of this Form 10-Q contain
"forward-looking statements" about the Company's prospects for the
future, such as its ability to generate sufficient working capital,
its ability to continue to maintain sales to justify capital expenses,
its ability to generate additional sales to meet business expansion,
and potential sales as a result of its contract with IBM. Such
statements are subject to certain risks and uncertainties which could
cause actual results to differ materially from those projected,
including availability of raw materials, availability of thermal
facsimile, computer, laser and color ink jet paper, to the cyclical
nature of the industry in which the Company operates, the potential of
technological changes which would adversely affect the need for the
Company's products, price fluctuations which could adversely impact
the large inventory required in the Company's business, and the
potential that the IBM contract may not prove profitable. Parties are
cautioned not to rely on any such forward-looking beliefs or judgments
in making investment decisions.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On April 2, 1996, the Company filed a complaint in the District Court
of Dallas County, Texas against Nor- Graphics, Inc., a wholly owned
subsidiary of United Energy Corp., the manufacturer of Variable Repeat
Batching Sheeter Systems in connection with the proposed purchase by
the Company of three systems. On May 20, 1997, the Company and
Nor-Graphics, Inc. reached a settlement. Nor-Graphics, Inc. agreed to
reimburse the Company in advance for repairs to be made to the first
system delivered in November 1995, and to rescind the contracts of the
other two systems. The settlement, which totaled approximately
$60,000, has been paid in full by Nor- Graphics, Inc.
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) NUMBER EXHIBIT
3(a) Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to Registration Statement on
Form S-1 No. 33-93814)
3(b) By-laws of the Company (incorporated by reference to
Exhibit 3.2 to Registration Statement on Form S-1 No.
33-93814)
4 Form of Underwriters' Warrant (incorporated by reference
to Exhibit 4.1 to Registration Statement on Form S-1 No.
33-93814)
10(a) 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to Registration Statement on Form S-1 No.
33-93814)
10(b) Employment Agreement dated September 28,1995, between the
Company and Marshall Sorokwasz (incorporated by reference
to Exhibit 10.2 to Registration Statement on Form S-1 No.
33-93814)
10(c)+ IBM Brand Paper Trademark Licensing Agreement, effective
as of April 30, 1997, between the Company and
International Business Machines Corporation.*
21 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21.1 to Registration Statement on Form S-1 No.
33-93814)
27 Financial data schedule
b) No reports on Form 8-K were filed during the quarter ended May 31, 1997.
* To be filed by Amendment.
+ Confidential Treatment requested for portions of this Exhibit
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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.
Dated: July 15, 1997
TST/ Impreso, Inc.
(Registrant)
/s/ Marshall D. Sorokwasz
Marshall D. Sorokwasz
Chairman of the Board
President, Chief Executive Officer,
and Director
/s/ Susan M. Atkins
Susan M. Atkins
Vice President and Chief
Financial Officer
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
3(a) Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to Registration Statement on
Form S-1 No. 33-93814)
3(b) By-laws of the Company (incorporated by reference to
Exhibit 3.2 to Registration Statement on Form S-1 No.
33-93814)
4 Form of Underwriters' Warrant (incorporated by reference
to Exhibit 4.1 to Registration Statement on Form S-1 No.
33-93814)
10(a) 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to Registration Statement on Form S-1 No.
33-93814)
10(b) Employment Agreement dated September 28,1995, between the
Company and Marshall Sorokwasz (incorporated by reference
to Exhibit 10.2 to Registration Statement on Form S-1 No.
33-93814)
10(c)+ IBM Brand Paper Trademark Licensing Agreement, effective
as of April 30, 1997, between the Company and
International Business Machines Corporation.*
21 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21.1 to Registration Statement on Form S-1 No.
33-93814)
27 Financial data schedule
* To be filed by Amendment.
+ Confidential Treatment requested for portions of this Exhibit