SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended January 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the
Exchange Act
For the transition period from to
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Commission file number 0-20303
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TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-2846796
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 382, 4 Hardscrabble Heights, Brewster, New York 10509
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(Address of principal executive offices)
(914) 277-8100
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(Issuer's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant 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 court.
Yes No
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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: As
--
of March 5, 1998: 8,489,322 shares of Common Stock, par value
- -------------------------------------------------------------
$0.0001 per share.
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Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements for the Company's fiscal
quarter ended January 31, 1998 are attached to this Report,
commencing at page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for historical information, the material
contained in this Management's Discussion and Analysis or Plan of
Operation is forward-looking. For the purposes of the safe harbor
protection for forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995, readers are urged to
review the list of certain important factors set forth in
"Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995" contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended October 31, 1997 ("Fiscal 1997"), which may
cause actual results to differ materially from those described.
COMPANY BACKGROUND
TASA provides the educational market, including
individual states, schools and colleges and universities with
selected learning, assessment and evaluation tools. The Company
develops, publishes, and distributes a highly regarded,
proprietary line of reading tests, and also designs tests
specifically to meet clients' measurement specifications. Through
its wholly-owned subsidiary, Modern Learning Press, Inc., a
Delaware corporation ("MLP"), the Company designs, publishes and
distributes affordable "consumable" student workbooks for grades
K-4, and creates and publishes books and pamphlets for elementary
school teachers and parents. In conjunction with Yale
University's Gesell Institute, MLP has published a line of books
on the Gesell child development scales, a predictor of a young
child's readiness to start kindergarten. The Company's
wholly-owned subsidiary, Beck Evaluation & Testing Associates,
Inc., a New York corporation ("BETA"), designs tests and
evaluates assessment needs for school districts and test and
textbook publishers. TASA's corporate headquarters are located
at 4 Hardscrabble Heights, P.O. Box 382, Brewster, New York
10509. The Company's telephone number is (914) 277-8100 and the
Company maintains its corporate website at (www.tasa.com). The
terms "Company" and "TASA " refer to Touchstone Applied Science
Associates, Inc. and its subsidiaries, unless the context
otherwise indicates.
The Company's reading comprehension tests are based on
its internally developed assessment methodology called the
Degrees of Reading Power ("DRP"). It publishes and sells its DRP
tests to over 3,400 elementary and secondary schools, colleges
and universities throughout the United States and Canada. Based
on its proprietary DRP methodology, the Company's products
measure an individual student's reading ability in a
non-culturally biased manner and allow tracking of an
individual's reading development over time. In 1997, management
estimates that over 4 million DRP tests were administered in the
United States and Canada in either the test's secure form or in
"shelf" form from the Company's catalogs.
Before Fiscal 1997, substantially all of the Company's
revenues were derived from the publishing and sale of DRP test
products and the provision of related services, such as test
scoring. Effective as of January 2, 1997, the Company purchased
all of the outstanding capital stock of BETA, and, effective as
of May 30, 1997, MLP purchased substantially all of the operating
assets of Programs for Education, Inc. In addition, during Fiscal
1997, the Company purchased the Maculaitis test, a test designed
to evaluate comprehension of English as a second language
("ESL"). TASA has also developed and introduced computerized and
Internet- based products and services, such as DRP-->BOOKLINK and
BookMatch, which are available to schools and subscribers either
by floppy disks or through the Company's Internet website
(www.bookmatchonline.com).
- -------------------------
RESULTS OF OPERATIONS
The following table sets forth, for the periods
indicated, certain financial data as a percentage of total
revenues. The percentages presented are prepared on an EBITDA (1)
format.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS FOR THE FIRST FISCAL QUARTER
All amounts in thousands As a percentage Dollar amounts
of dollars except percentages
EBITDA(1) Format 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues 100% 100% $1,298 $938
Costs of Goods Sold 21% 20% 279 186
Gross Profit 79% 80% 1,019 751
Operating Expenses:
Selling expenses 25% 22% 323 209
General and administrative 36% 23% 473 217
Operating income (EBITDA) 17% 35% 222 326
Depreciation-amortization 16% 12% 213 112
Net Interest Expense (Income) 4% -2% 52 (23)
EBT(2) -3% 24% (43) 224
Net income -3% 16% (33) 151
<FN>
_________________________________
(1) Earnings before interest, taxes, and depreciation and amortization
(2) Earnings (loss) before taxes
</FN>
</TABLE>
REVENUES. Revenues of $1,298,000 for the first quarter
of 1998 represented an increase of 38%, or $360,000, over the
prior year's first quarter sales of $938,000. This increase
reflected both the Company's internal growth as well as sales
included this year from two acquisitions completed during and
subsequent to the first quarter of Fiscal 1997. Of this year's
sales increase of $360,000, approximately $57,000, or 18%, of the
gain resulted from a 6% internal growth during the quarter. An
additional $75,000, or 20%, of the gain is attributable to the
Company's acquisition of BETA in January 1997, for which only one
month's revenues were included in the first quarter of Fiscal
1997. The balance of the increase in revenues, or approximately
$228,000, resulted from the acquisition of MLP completed in May
1997. The following is a discussion of the four components of
revenues.
Contract sales, reflecting sales of secure DRP tests to
the States of New York, Connecticut and Virginia increased 6% in
the first quarter of 1998 to $495,000 from approximately $466,000
in last year's first quarter. Historically, contract sales in the
first quarter, a period when the state customers generally
address and reorder their needs for the school year, represents
approximately 45%-55% of the year's total contract sales. With
the continuing growth of catalog sales and the acquisition of MLP
and BETA, contract sales as a percentage of total revenues has
been significantly reduced as compared to prior years and prior
quarters during those years.
Catalog sales, representing the sale of DRP tests, DRP
computerized tests, TextSense and the Company's Internet
product, BookMatch, increased 7% to approximately $451,000 from
approximately $423,000 in the comparable quarter last year.
Seasonally, the major quarter for catalog sales is the Company's
third fiscal quarter, when school customers generally reorder for
the new school year and purchase specific test scoring services.
Management's sales and marketing programs have resulted in
substantially increased numbers of new catalog customers for the
past three years. In addition, due to the increasing diversity of
the Company's products coupled with the increasing numbers of new
school, college and university customers, management currently
anticipates that catalog sales will vary significantly less by
quarter than will contract sales.
The revenues of BETA, the Company's educational
consulting subsidiary, increased 156% to $123,000 in the first
quarter of Fiscal 1998 as compared to revenues of $48,000 in the
comparable quarter last year. Sales in the first quarter of
Fiscal 1997 only included sales for the one month after TASA
acquired BETA as of January 2, 1997. During 1997, three
additional states and their prime contractors awarded BETA
multi-year "test standards setting and evaluation" contracts,
bringing to five the number of BETA's state clients. At January
31, 1998, BETA's backlog of contract work has increased
substantially as compared to the end of the first quarter on
1997. Sales from services performed under these contracts will
vary by fiscal quarter depending on timing of required contract
services.
MLP, acquired by the Company in May 1997, had sales of
$228,000 for the first quarter of 1998. There were no sales for
MLP in the first quarter of 1997. Based on management's analysis,
over 70% of MLP's annual sales have historically occurred during
the periods comprising TASA's third and fourth fiscal quarters.
The first quarter generally accounts for less than 15% of MLP's
annual sales. Management has implemented a strategic growth plan
for MLP. Such plan includes the introduction of new titles, the
broadening of MLP's product line for schools, parents and
teachers, and a sales program focused on expanding MLP's client
base from among TASA clients as well as new outside clients.
Management believes there is only a 5% overlap between MLP's
current customer base and TASA's 3,400 educational institutions
client base.
COST OF GOODS SOLD AND GROSS PROFIT. Cost of goods
sold, excluding amortization of the Company's Test Passage Bank,
remained constant at 21% of sales in 1998's first fiscal quarter
as compared to 20% in the comparable period last year. In the
1998 first quarter, after cost of goods sold of $279,000, the
Company's gross profit was 79% of revenues or $1,019,000. This
compares to last year's comparable period when gross profit after
cost of goods sold of $186,000 constituted 80% of revenues or
$751,000. The constant gross profit margins in the current year
was due to the acquisition of the higher margin business of MLP
offset by the lower margin consulting business of BETA.
SELLING EXPENSES. Selling expenses for the 1998 first
quarter increased to 25% of revenues or $322,000 as compared to
$209,000 or 22% of revenues in the comparable period last year.
Substantially all of this increase of $113,000 (representing a
54% increase over selling expenses for the first quarter of
Fiscal 1997), is due to the inclusion in 1998's first quarter of
selling expenses for MLP ($93,000), which was not included in
last year's comparable period. The remainder of the increase in
selling expenses was due to inclusion of BETA for the full
quarter, rather than only one month in the comparable 1997
period. For MLP, annual selling expenses, which are
substantially incurred at this point in the fiscal year, are
capitalized and amortized over the remainder of the fiscal year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses for the first quarter of 1998, excluding
depreciation and amortization, increased as a result of the
acquisition of MLP and BETA, and the necessary expansion of the
Company's corporate infrastructure and periodic services.
Excluding depreciation and amortization, the Company's general
and administrative expenses for the 1998 first quarter increased
$257,000 or 119% to 36% of revenues or $473,000. This compares to
general and administrative expenses in 1997's first quarter of
$217,000, or 23% of revenues. Over 70% of this increase, or
$187,000, was due to the inclusion of MLP and BETA for the full
quarter. Management believes that, based on the Company's overall
revenue patterns and the relatively even distribution of general
and administrative expenses throughout the fiscal year, that the
percentage of revenues utilized for general and administrative
expenses should decline in the latter quarters of the Company's
fiscal year.
OPERATING PROFIT ("EBITDA"). The Company's earnings
before depreciation, amortization, interest and taxes (EBITDA)
for the first quarter of 1998 was $222,000, or 17% of revenues,
as compared to $326,000, or 35% of revenues, in the comparable
period last year. Management believes that the 1997 first fiscal
quarter is not a completely relevant comparison as that quarter
did not include the operations of MLP which incurs a
disproportionate amount of expenses in the first quarter with a
greater proportion of its revenues in subsequent fiscal quarters.
DEPRECIATION AND AMORTIZATION. Depreciation and
amortization expenses in the current quarter increased 90% to
$213,000 from $112,000 in last year's comparable quarter. Of this
quarter's $101,000 increase, $75,000 was due to the amortization
of acquisition costs attributable to MLP while $16,000 was
attributable to the amortization of acquisition goodwill of BETA.
In the May 1997 MLP acquisition, $200,000 of the purchase price
was paid by a one-year prepaid consulting contract amortizing
$50,000 per quarter, and terminating in May 1998. Of the first
quarter's depreciation and amortization, approximately $84,000 is
categorized in cost of goods sold representing amortization of
TASA's Test Passage Bank, while the remainder is reported as
general and administrative expenses.
EARNINGS BEFORE INTEREST AND TAXES ("EBIT"). The
Company's earnings before interest and taxes decreased in the
current year's first quarter to 1% of sales, or $9,000, as
compared to 22%, or $213,000, in the first quarter of 1997. This
decline is directly attributable to the factors discussed above.
NET INTEREST EXPENSE (INCOME). The Company's two major
acquisitions completed last year were in part financed by
interest bearing notes issued to the sellers. Therefore, total
interest expense in the 1998 first fiscal quarter rose to $63,000
from $17,000 in last year's comparable period. Concurrently,
management has continued to invest the Company's cash liquidity
into the Company's business from which it expects to derive
higher returns than previously earned in cash and equivalent
investments. Consequently, reduced interest income was reported
in the current quarter of $11,000 as compared to $40,000 in last
year's first quarter. This has resulted in a net interest expense
for the current year's first quarter of $52,000 as compared to
net interest earnings of $23,000 in the comparable quarter last
year. Management expects that the Company will continue to have a
net interest expense, for the next several fiscal years.
EARNINGS (LOSS) BEFORE TAXES ("EBT"). The Company had
a loss before taxes of $43,000 for the first quarter of Fiscal
1998, as compared to earnings of $224,000 in the comparable
period last year. In the first quarter of Fiscal 1997, the
Company booked a $12,000 loss on the sale of an asset before
calculating earnings before taxes.
INCOME TAX PROVISION (CREDITS). In the current
quarter, the Company partially offset its EBT loss by the
availability of a tax credit of $10,000. This compares to a tax
provision in the first quarter of 1997 of $73,000. The tax
provision and credit were computed at statutory tax rates.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Company continues to generate
substantial cash from operations as measured by EBITDA. For 1998,
the first quarter EBITDA was $222,000 as compared to $326,000 in
the comparable period last year. The increase of depreciation and
amortization charged to earnings in the current quarter derives
specifically from the acquisition of MLP and BETA. As previously
noted, $50,000 of the quarterly amortization charge will end in
May 1998, representing completion of the amortization of a
one-year prepaid consulting contract issued in connection with
the acquisition of MLP.
In the current quarter, management continued its
program to reduce the Company's accounts receivable and
inventory. This plan resulted in the generation of $212,000 of
cash during the first quarter of 1998 as compared to $144,000
invested in or used in the comparable quarter of 1997. The main
use of cash in operations in the current quarter was $452,000
representing an increase of prepaid expenses and a reduction of
accounts payable. During 1997's first quarter, only $53,000 was
spent for these specific purposes. Therefore, operations used
total cash of $52,000 during the first quarter of 1998 as
compared to cash generated of $59,000 in 1997's first quarter.
INVESTING ACTIVITIES. During the first quarter of
1998, the Company invested cash of $172,000 in capital
expenditures, its proprietary Test Passage Bank and additional
software development. This compares with $166,000 in the
comparable quarter last year. Specifically, in the current
quarter, expenditures of $64,000 were made in the Company's
proprietary Test Passage Bank (versus $116,000 in the first
quarter of 1997), while software expenditures rose slightly to
$59,000 over $44,000 spent in last year's comparable quarter.
Capital expenditures for fixed assets remained approximately
level at $49,000 versus $39,000 in last year's first quarter.
Management expects that the level of cash investments made during
the first quarter will continue at a slightly increased level.
FINANCING ACTIVITIES. The Company used a total of
$25,000 in cash for financing activities during the quarter. This
primarily resulted from the receipt of cash of $45,000 from the
exercise of outstanding warrants and the scheduled use of $77,000
to reduce long-term debt during the quarter. This compares with
approximately the same use of cash in 1997's first quarter of
$26,000.
NET CASH CHANGE. As a result of the Company's
operating, investing, and financing activities for the first
fiscal quarter in 1998, the Company cash balances were reduced by
$249,000 to $908,000. The Company's working capital at January
31, 1998 was $2,177,000 with a current ratio of 4.8 to 1. This
compares to working capital at January 31, 1997 of $2,244,000 and
a current ratio of 3.7 to 1. Management believes that its
existing debt obligations can be financed from the cash flow from
operations. The Company has no other material commitments for
capital or other expenditures and is not party to any arrangement
that would adversely impact the Company's liquidity.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 -- Computation of Earnings per Common Share
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED JANUARY 31, 1998
Consolidated Balance Sheets F-1
Consolidated Statements of Income F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-6
<PAGE> F - 1
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
Page 1 of 2
CONSOLIDATED BALANCE SHEETS
January 31, October 31,
1 9 9 8 1 9 9 7
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<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 908,067 $1,156,664
Marketable securities 370,530 377,560
Accounts receivable 615,495 803,021
Inventories 336,081 360,227
Prepaid expenses and other current assets 513,059 381,381
Total current assets 2,743,232 3,078,853
Property, plant and equipment - net of
accumulated depreciation of $1,063,970
and $1,029,417, respectively 1,754,107 1,739,947
Other assets:
Test passage bank, net of accumulated
amortization of $1,250,001 and $1,175,235
respectively 2,733,059 2,743,853
Software development costs, net of
accumulated amortization of $37,803 and $30,517,
respectively 392,624 340,930
Goodwill, net of accumulated amortization of
$89,233 and $65,511 773,024 796,746
Noncompete agreements, net of accumulated
amortization of $47,619 and $29,672 452,381 470,238
Deferred income taxes 346,693 335,722
Other assets 81,805 86,596
Total assets $9,276,925 $9,592,885
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 1
<PAGE> F - 2
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
Page 2 of 2
CONSOLIDATED BALANCE SHEETS
January 31, October 31,
1 9 9 8 1 9 9 7
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 316,567 $ 314,217
Accounts payable and accrued expenses 249,544 520,148
Total current liabilities 566,111 834,365
Long-term debt less current portion 2,449,337 2,528,968
Total liabilities 3,015,448 3,363,333
Stockholders' equity:
Preferred stock, $.0001 par value, 5,000,000
authorized, 1,500 issued and outstanding -- --
Common stock, $.0001 par value, 20,000,000
authorized, 8,489,322 and 8,389,322 shares
issued and outstanding, respectively 849 839
Additional paid-in capital 4,410,990 4,365,875
Stock subscription receivable (14,350) (14,350)
Unrealized holding gain 8,542 8,601
Unearned compensatory stock (87,140) (107,046)
Retained earnings 1,942,586 1,975,633
Total stockholders' equity 6,261,477 6,229,552
Total liabilities & stockholders' equity $9,276,925 $9,592,885
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 2
<PAGE> F - 3
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
January 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Contract income $ 495,372 $ 466,048
Catalog sales 450,624 423,026
Consulting income 123,319 48,437
Catalog sales -- MLP 228,429 --
Total net revenue 1,297,744 937,511
Cost of goods sold 363,596 260,112
Gross profit 934,148 677,399
Operating expenses:
Selling expenses 322,827 209,232
General and administrative expenses 601,981 254,852
Total operating expenses 924,808 464,084
Income from operations 9,340 213,315
Other income (expense):
Interest expense (63,222) (17,247)
Loss on sale of assets -- (11,700)
Investment income 10,864 40,055
(Loss) income before income taxes (43,018) 224,423
Income taxes (benefit) (9,971) 72,981
Net (loss) income $ (33,047) $ 151,442
Weighted average shares outstanding
Basic 8,447,564 7,938,223
Diluted 8,447,564 7,938,223
Earnings per share
Basic $ -- $ .02
Diluted $ -- $ .02
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 3
<PAGE> F - 4
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
January 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (33,047) $ 151,442
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 212,976 112,262
Deferred income taxes (10,971) (22,409)
Financial advisory services 19,906 2,344
Loss on sale of auto -- 11,700
Changes in operating assets and liabilities:
Accounts receivable 187,526 (134,670)
Inventory 24,146 (9,118)
Prepaid expenses (181,676) --
Other assets -- (31,703)
Accounts payable and accrued expenses (270,607) (21,172)
NET CASH FLOWS FROM OPERATING ACTIVITIES (51,747) 58,676
INVESTING ACTIVITIES
Test passage bank (63,972) (115,829)
Software development costs (58,980) (44,476)
Acquisition of fixed assets (48,713) (38,824)
Purchase of marketable securities -- (2,531)
Proceeds from sale of marketable securities -- 200,000
Proceeds sale of auto -- 10,000
Acquisition of subsidiary -- (143,974)
Acquisition of test -- (29,900)
NET CASH FLOWS FROM INVESTING ACTIVITIES (171,665) (165,534)
FINANCING ACTIVITIES
Principal payments on industrial revenue
bond obligation -- (20,446)
Net proceeds from exercise of warrants 45,125 --
Increase in loan payable 6,971 --
Mortgage costs and other -- (5,574)
Repayment of long-term debt (77,281) --
NET CASH FLOWS FROM FINANCING ACTIVITIES (25,185) (26,020)
NET CHANGE IN CASH AND TEMPORARY INVESTMENTS (248,597) (132,878)
CASH AND TEMPORARY INVESTMENTS
AT BEGINNING OF PERIOD 1,156,664 1,049,819
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD $ 908,067 $ 916,941
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 4
<PAGE> F - 5
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
January 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 70,172 $ 16,310
Income taxes paid $ 41,200 $ 3,417
Stock issued for prepaid consulting costs (Note B) $ -- $ 93,750
SUMMARY OF ACQUIRED SUBSIDIARY:
Assets acquired consisting primarily of Goodwill $ -- $ 374,067
Liabilities assumed, including cash payment to
prior shareholders $ -- $ 374,067
Fair value of common stock issued $ -- $ 79,650
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 5
<PAGE> F - 6
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------
In the opinion of management, the accompanying consolidated
financial statements of Touchstone Applied Science Associates,
Inc. contain all adjustments necessary to present fairly the
Company's consolidated financial position as of January 31, 1998
and October 31, 1997 and the consolidated results of operations
for the three months ended January 31, 1998 and 1997 and
consolidated cash flows for the three months ended January 31,
1998 and 1997.
The consolidated results of operations for the three months ended
January 31, 1998 and 1997 are not necessarily indicative of the
results to be expected for the full year.
Except as follows, the accounting policies followed by the
Company are set forth in Note A to the Company's consolidated
financial statements included in its Annual Report on Form 10-KSB
for the year ended October 31, 1997.
Earnings per Share
- ------------------
Effective November 1, 1997, the Company adopted Financial
Accounting Standards Board Statement of Financial Accounting
Standards Number 128, "Earnings Per Share". Under this standard,
the method for calculation of earnings per share was changed and
requires the presentation of "basic" and "diluted" earnings per
share. Prior period earnings per share have been restated to
conform with these provisions.
NOTE B -- CONSULTING AGREEMENT
- ------------------------------
In November 1997, the Company entered into a written consulting
agreement with a financial consultant. The consultant will be
paid for the ensuing three consecutive months and has an option
to purchase 5,000 shares of the Company's common stock for $.813
per share in exchange for consulting services. The cost of these
services has been valued at $15,000 and will be expensed over
three consecutive months.
F - 6
<PAGE>
SIGNATURE
In accordance with 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.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By /s/ ANDREW L. SIMON
--------------------------------------
Andrew L. Simon
President, Chief Executive Officer
and Treasurer
(principal financial officer)
Date: March 12, 1998
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
Three Months Ended
January 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Basic earnings:
Net income (loss) $ (33,047) $ 151,442
Shares:
Weighted common shares outstanding 8,447,564 7,938,223
Harriman options -- --
Employee stock options -- --
B warrants -- --
Underwriter options -- --
Total weighted shares outstanding 8,447,564 7,938,223
Basic earnings per common share $ -- $ .02
Diluted earnings:
Net income (loss) $ (33,047) $ 151,442
Shares:
Weighted common shares outstanding 8,447,564 7,938,223
Harriman options -- --
Employee stock options -- --
B warrants -- --
Underwriter options -- --
Total weighted shares outstanding 8,447,564 7,938,223
Diluted earnings per common share $ -- $ .02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated balance sheet and statements of income
filed as part of the Quarterly Report on Form 10-QSB for the
quarter ended January 31, 1998 and is qualified in its
entirety by reference to such report on Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 908,067
<SECURITIES> 370,530
<RECEIVABLES> 615,495
<ALLOWANCES> 0
<INVENTORY> 336,081
<CURRENT-ASSETS> 2,743,232
<PP&E> 2,818,077
<DEPRECIATION> 1,063,970
<TOTAL-ASSETS> 9,276,925
<CURRENT-LIABILITIES> 566,111
<BONDS> 2,449,337
0
0
<COMMON> 849
<OTHER-SE> 6,260,628
<TOTAL-LIABILITY-AND-EQUITY> 9,276,925
<SALES> 1,297,744
<TOTAL-REVENUES> 1,308,608
<CGS> 363,596
<TOTAL-COSTS> 924,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,222
<INCOME-PRETAX> (43,018)
<INCOME-TAX> (9,971)
<INCOME-CONTINUING> (33,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,047)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
