U.S. 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 April 30, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
---------------- -----------------
Commission file number 0-20303
---------------------------------------------
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
- -----------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-2846796
- --------------------------------- -----------------------------------
(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)
- -----------------------------------------------------------------------
(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
------------------- -----------------
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
------------ ------------
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 June 7, 1999: 2,141,801 shares of Common Stock, par
----------------------------------------------------------
value $0.0001 per share
- -----------------------
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements for the Company's fiscal
quarter ended April 30, 1999 are attached to this Report,
commencing at page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, 1998 ("Fiscal 1998"), which may
cause actual results to differ materially from those described.
BACKGROUND
For over 20 years, TASA served the educational market
with essentially one type of assessment product. Beginning in
1997 and through November 1998, through a series of acquisitions,
the Company has expanded into, and now serves, three segments of
the educational market: (1) the educational assessment and
evaluation market with our standardized assessment products,
including the Degrees of Reading Power (DRP) tests, and through
Beck Evaluation and Testing Associates, Inc. ("BETA"), the
Company's custom test design division; (2) the instructional
market through Modern Learning Press, Inc. ("MLP"); and (3) the
educational delivery market through the Company's post-secondary
proprietary school division, which is now known as TASA
Educational Services Corp. ("TESC"), a subsidiary of the Company
which operates as a holding company for the school division, and
which operates the Mildred Elley Schools through MESI Acquisition
Corp. ("MESI"). In an effort to report the revenues in each of
these areas in a more meaningful manner, the Company is reporting
revenues in these three discrete categories and prior periods
will be recharacterized into these segments for comparative
purposes.
RESULTS OF OPERATIONS
The following table compares the revenues for each of
the assessment division, the instructional division and the
educational delivery division for the six-month period ended
April 30, 1999 versus the six-month period ended April 30, 1998
and for the second quarter ended April 30, 1999 versus the second
quarter ended April 30, 1998.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS FOR THE SECOND FISCAL QUARTER
AND FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1999
Six Months Three Months
Ended April 30, % Ended April 30, %
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
(in thousands (in thousands
of dollars) of dollars)
<S> <C> <C> <C> <C> <C> <C>
Assessment Products Revenues $2,077.9 $1,868.0 +11.2 $1,034.2 $798.7 +29.5
Instructional Revenues 573.5 546.9 +4.9 371.6 318.5 +16.7
Educational Delivery Revenues 2,548.5 -- N/A 1,437.9 -- N/A
-------- -------- ------ -------- -------- ------
Total Revenues $5,199.9 $2,414.9 +115.3 $2,843.7 $1,117.2 +154.5
</TABLE>
The following are selected ratios as a percentage of revenues on the Company's
financial statements:
Six Months Three Months
Ended April 30, Ended April 30,
1999 1998 1999 1998
---- ---- ---- ----
(in percentages)
Revenues 100% 100% 100% 100%
Gross Profit Margin 62 67 65 62
Operating Expense:
Selling Expense 21 30 20 36
General & Administrative 42 49 40 52
Bad Debt Recovery 0 (8) 0 (18)
Income (Loss) from Operations (1) (4) 5 (8)
Other (Expense) (5) (4) (5) (4)
Pre-Tax (Loss) (6) (8) (0) (12)
Net (Loss) (4) (8) (0) (14)
FOR THE THREE MONTHS ENDED APRIL 30, 1999
REVENUES. For the three-month period ended April 30,
--------
1999 (the "Current Quarter"), revenues were $2,843,805,
representing a 155% increase, or $1,726,612, over $1,117,193 for
the three-month period ended April 30, 1998 (the "Comparable
Quarter"). This increase resulted from the acquisition of the
Mildred Elley Schools in November 1998 as well as increases in
revenues in the Company's assessment and instructional divisions
during the Current Quarter.
Revenues for assessment products and services increased
29%, or $235,494, to $1,034,230 in the Current Quarter from
$798,736 in the Comparable Quarter. Of this increase, the
Company's proprietary test division featuring DRP products
reflected a revenue increase of 2% while the custom test design
division, BETA, increased its revenues by 180%. During the
Current Quarter, the Company announced that it had received two
contracts, through BETA, amounting to approximately $1 million in
revenue which will be fulfilled during the third and fourth
quarters of the current fiscal year.
Instructional revenues increased 17% in the Current
Quarter from the Comparable Quarter (or $371,631 in the Current
Quarter versus $318,457 in the Comparable Quarter). In late 1998,
management made the decision to shift its marketing focus and
direct sales representation as well as to engage in cooperative
marketing efforts. Management believes that the results from
these efforts will be seen in the third and fourth fiscal
quarters, traditionally peak sales periods for the instructional
division, MLP.
The educational delivery division contributed
$1,437,944 to the Company's Current Quarter revenues, which
represented 83% of the Current Quarter revenue increase over the
Comparable Quarter. There were no revenues for this division in
the Comparable Quarter.
COST OF GOODS SOLD. Cost of goods sold in the Current
------------------
Quarter increased 136%, or $580,207, from $425,195 in the
Comparable Quarter to $1,005,402 in the Current Quarter. Cost of
goods sold as a percentage of revenues remained fairly constant
with a minimal decrease of approximately 3% in the Current
Quarter versus the Comparable Quarter (or 35% in the Current
Quarter versus 38% in the Comparable Quarter).
GROSS PROFIT. In the Current Quarter, gross profit
------------
increased by 166%, or $1,146,405, from $691,998 in the Comparable
Quarter to $1,838,403 in the Current Quarter. The increase in
gross profit is attributable to an increase in revenues resulting
primarily from the acquisition of the Mildred Elley Schools. The
gross profit margin percentage also increased in the Current
Quarter to approximately 65% from 62% in the Comparable Quarter.
SELLING EXPENSES. Selling expenses for the Current
----------------
Quarter increased by 41%, or $163,186, from $397,170 in the
Comparable Quarter to $560,356 in the Current Quarter. However,
for the Current Quarter, selling expenses were 20% of revenues
versus 36% for the Comparable Quarter. This decline of selling
expenses as a percentage of revenues is due to increased revenues
for BETA and the Company's educational delivery division, both of
which require lower marketing expenditures than the proprietary
test division.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's
-----------------------------------
general and administrative expenses increased 96%, or $562,558,
from $587,439 in the Comparable Quarter to $1,149,997 in the
Current Quarter. However, general and administrative expenses
were 40% of revenues in the Current Quarter versus 52% in the
Comparable Quarter. This decrease is the result of revenue
increases contributed primarily through BETA and the Company's
educational delivery division. Management believes that this
percentage will continue to decrease throughout the current
fiscal year as the Company moves into its higher sales volume
periods.
BAD DEBT RECOVERY. In the Comparable Quarter, the
-----------------
Company recovered $200,000 from a settlement of a $400,000 loan
made by previous management. There was no bad debt recovery in
the Current Period.
INCOME (LOSS) FROM OPERATIONS. Income from operations
-----------------------------
for the Current Quarter was $128,050 versus a loss from
operations of ($92,611) in the Comparable Quarter. This increase
is primarily attributable to increased revenues in both the
Company's educational delivery and custom test design divisions.
EBITDA. Earnings before interest, taxes, depreciation,
------
and amortization increased $283,390 to $374,957 or 13% of
revenues in the Current Quarter from $136,567 or 12% of revenues
in the Comparable Quarter. This increase was primarily
attributable to the additional earnings contributed through the
Mildred Elley Schools acquisition and the Company's custom test
design division.
OTHER INCOME (EXPENSE). Other expense increased to
----------------------
($145,371) in the Current Quarter from ($48,852) in the
Comparable Quarter. This increase was directly attributable to
additional interest expense incurred in funding the Mildred Elley
Schools acquisition.
LOSS BEFORE INCOME TAXES. The Company had a loss of
------------------------
($17,321) for the Current Quarter versus a loss of ($141,463) for
the Comparable Quarter. This decrease in the loss is largely
attributable to the Company's revenue increase in the Current
Quarter as a result of the Mildred Elley Schools acquisition,
combined with fixed operating expenses remaining fairly constant.
NET LOSS AND EARNINGS PER SHARE. Net loss after taxes
-------------------------------
was ($9,347) for the Current Quarter versus a loss of ($160,365)
for the Comparable Quarter. Loss per share was ($.00) based on
weighted average shares outstanding of 2,141,801. After giving
effect to the Company's one-for-four reverse stock split which
was effected on March 4, 1999, the Comparable Quarter loss per
share was ($.08) based upon 2,122,331 shares outstanding.
FOR THE SIX MONTHS ENDED APRIL 30, 1999
REVENUES. For the six-month period ended April 30,
--------
1999 (the "Current Period") revenues were $5,199,932,
representing a 115% increase, or $2,784,995, over $2,414,937 for
the six-month period ended April 30, 1998 (the "Comparable
Period"). The overall increase was due to the acquisition of the
Mildred Elley Schools in November 1998 as well as increases in
the revenues of the Company's assessment and instructional
divisions during the period.
Revenues for assessment products and services increased
11%, or $209,814, from $1,868,051 in the Comparable Period to
$2,077,865 during the Current Period. Revenues from the
Company's proprietary test division, featuring DRP products, fell
6.3% due to the expected elimination of the New York State Grades
3 and 6 PEP tests. This decrease was offset by growth in the
Company's custom test design division, BETA, which posted a
revenue increase of 122%.
Instructional revenues increased 4.9% in the Current
Period, totaling $573,532, which is $26,646 over the Comparable
Period's revenues of $546,886.
Revenues from the Company's educational delivery
division were $2,548,535 for the Current Period, which
represented 92% of the Current Period revenue increase over the
Comparable Period. There were no revenues for this division in
the Comparable Period.
COST OF GOODS SOLD. Cost of goods sold in the Current
------------------
Period increased by 150%, or $1,183,187, from $788,791 in the
Comparable Period to $1,971,978 in the Current Period. Cost of
goods sold as a percentage of revenues increased to 38% in the
Current Period from 33% in the Comparable Period. This increase
was the result of the increased costs required to deliver
assessment products and services further resulting from the
increase in BETA revenues, and the costs associated with
generating revenues from the educational delivery division.
GROSS PROFIT. For the Current Period, gross profit
------------
increased by 99%, or $1,601,808, from $1,626,146 in the
Comparable Period, to $3,227,954. The increase in gross profit
is attributable to an increase in revenues resulting primarily
from the Mildred Elley Schools acquisition. The gross profit
margin decreased in the Current Period to 62% versus 67% in the
Comparable Period as a result of the Company's change in product
mix particularly within the assessment division during the first
quarter of the Company's current fiscal year.
SELLING EXPENSE. Selling expenses for the Current
---------------
Period increased by 54%, or $385,718, from $719,997 in the
Comparable Period to $1,105,715 in the Current Period. However,
for the Current Period, selling expenses were 21% of revenues
versus 30% for the Comparable Period. This decline of selling
expenses as a percentage of revenues is a function of the
increase in BETA revenues and the revenue increase in the
Company's educational delivery division, both of which require
lower marketing expenditures than the proprietary test division.
GENERAL AND ADMINISTRATIVE. The Company's general and
--------------------------
administrative expenses increased 84%, or $994,435, from
$1,189,420 in the Comparable Period to $2,183,855 in the Current
Period. However, general and administrative expenses as a
percentage of sales fell to 42% in the Current Period from 49% in
the Comparable Period. This decrease is the result of revenue
increases contributed primarily through the Company's custom test
design division, BETA, and the Company's educational delivery
division, TESC. Management believes that this percentage will
continue to decrease during the third and fourth quarters of the
current fiscal year as the Company approaches its higher sales
volume periods.
BAD DEBT RECOVERY. In the Comparable Period, the
-----------------
Company recovered $200,000 from a settlement of a $400,000 loan
made by previous management. There was no bad debt recovery in
the Current Period.
INCOME (LOSS) FROM OPERATIONS. Loss from operations
-----------------------------
for the Current Period was ($61,616) versus a loss from
operations of ($83,271) in the Comparable Period. Due to the
non-recurring bad debt recovery of $200,000, which was recognized
in the Comparable Period, there was a real increase in income
(loss) from operations of $221,655. Such increase was primarily
attributable to increased revenues in both the Company's
educational delivery and custom test design divisions.
EBITDA. Earnings before interest, taxes, depreciation,
------
and amortization increased $40,837 to $399,718, or 8% of
revenues, for the Current Period versus $358,881, or 15% of
revenues, for the Comparable Period. However, due to the
non-recurring bad debt recovery of $200,000, which was recognized
in income (loss) from operations for the Comparable Period, there
was a real increase in EBITDA for the Current Period of $240,837.
This increase is primarily attributable to the additional
earnings contributed through the Mildred Elley Schools
acquisition and the Company's custom test design division.
OTHER INCOME (EXPENSE). Other expense increased to
----------------------
($278,103) in the Current Period versus ($101,210) in the
Comparable Period. The increase in expenses is directly
attributable to the interest expense incurred with the
acquisition of Mildred Elley Schools.
LOSS BEFORE INCOME TAXES. The Company had a loss
------------------------
before taxes of ($339,719) for the Current Period versus a loss
before taxes of ($184,481) in the Comparable Period.
NET LOSS AND EARNINGS PER SHARE. Net loss after taxes
-------------------------------
was ($209,704) for the Current Period versus a loss of ($193,411)
for the Comparable Period. Due to the non-recurring bad debt
recovery of $200,000 which occurred in the Comparable Period,
there was a real decrease in the Company=s loss after taxes for
the Current Period of ($183,707). Loss per share was ($.10)
based on weighted average shares outstanding of 2,141,801. After
giving effect to the Company's one-for-four reverse stock split
which occurred on March 4, 1999, the Comparable Period loss per
share was ($.09) based upon 2,117,053 shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. Working capital at the end of the
---------------
Current Period was $3,341,867, down from $5,824,816 at the
beginning of the fiscal year. The $2.5 million decrease was due
to the acquisition of the Mildred Elley schools in November 1998.
The ratio of current assets to current liabilities was 2.62 to
1.0 at the end of the Current Period.
CASH FLOW FROM OPERATING ACTIVITIES. For the Current
-----------------------------------
Period, the Company had a negative cash flow from operations of
($915,555) versus ($285,974) in the Comparable Period. The
factors contributing to this negative flow were the paydown of
accounts payable ($501,747) and an increase in tuition
receivables of ($266,969), as the Mildred Elley Schools must
extend its students loans for tuition until the schools are
reinstated into the Federal loan program, and a decrease in
deferred revenue of ($512,808) as a result of tuition revenue
recognized during the Current Period.
CASH FLOW FROM INVESTING ACTIVITIES. For the Current
-----------------------------------
Period, the Company had a net cash outflow from investing
activities of ($2,443,451) versus a net cash inflow of $76,581 in
the Comparable Period, which is primarily attributable to the
acquisition of the Mildred Elley Schools during the current
fiscal year.
CASH FLOW FROM FINANCING ACTIVITIES. For the Current
-----------------------------------
Period, the Company had a net cash outflow from financing
activities of ($490,678) versus ($573,546) in the Comparable
Period. The outflow was essentially attributable to the paydown
of certain debt ($150,000) relating to the Mildred Elley Schools
acquisition as well as the servicing of long-term debt ($352,920)
associated with the MLP and Mildred Elley Schools acquisitions.
YEAR 2000 MATTERS. In Fiscal 1998, the Company
-----------------
developed and implemented a program to resolve the potential
impact of the year 2000 on the ability of the Company's
computerized information systems to accurately process
information that may be date-sensitive. Accordingly, the Company
believes that its financial and information systems are now Year
2000 compliant. As to third-party relationships, the Company
believes that most of these parties intend to be Year 2000
compliant by January 1, 2000; however, there can be no assurance
that this will be the case. The costs incurred during Fiscal 1998
were not material and the Company believes that any further costs
to be incurred will also not be material. Any of the Company's
programs that recognize a date using "00" as other than the year
2000 could result in errors or system failures. The Company
utilizes a number of computer programs across its entire
operation. However, if the Company and third parties upon which
it relies are unable to address this issue in a timely manner, it
could result in a material financial risk to the Company.
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 10.1 -- Employment Agreement, dated as of March 26, 1999,
between the Company and Denise Stefano
Exhibit 11 -- Computation of Earnings per Common Share
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K
None.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 30, 1999
Consolidated Balance Sheets F-1
Consolidated Results of Operations and Comprehensive 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
April 30, October 31,
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and temporary investments $1,130,546 $ 4,980,230
Marketable securities 186,178 186,376
Accounts receivable 941,786 1,287,264
Tuition receivable, net of allowance 2,248,549 --
Inventories 490,066 478,869
Prepaid expenses and other current assets 408,439 173,679
---------- -----------
Total current assets 5,405,564 7,106,418
Property, plant and equipment, net of
accumulated depreciation of $1,279,678
and $1,179,297, respectively 2,107,896 1,753,811
Other assets:
Deferred acquisition costs 6,718 353,406
Tuition receivable, net of current
portion and allowance 483,930 --
Notes and interest receivable 159,327 --
Test passage bank, net of accumulated
amortization of $1,642,243 and $1,474,302,
respectively 2,745,910 2,675,624
Software development costs, net of
accumulated amortization of $132,290
and $88,702, respectively 307,202 350,790
Goodwill, net of accumulated amortization of
$201,135 and $122,993, respectively 3,618,797 739,264
Noncompete agreements, net of accumulated
amortization of $136,488 and $101,095,
respectively 363,512 398,905
Deferred income taxes 478,549 390,148
Other assets 315,795 306,274
---------- ----------
Total assets $15,993,200 $14,074,640
=========== ===========
<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
April 30, October 31,
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to bank $ 400,000 $ --
Current portion of long-term debt 316,423 261,034
Accounts payable and accrued expenses 1,347,274 1,020,568
---------- ----------
Total current liabilities 2,063,697 1,281,602
Long-term debt:
Subordinated debt 4,000,000 4,000,000
Long-term debt less current portion 3,530,456 2,267,198
---------- ----------
Total liabilities 9,594,153 7,548,800
---------- ----------
Stockholders' equity: (Note 4)
Preferred stock, $.0001 par value, 5,000,000
shares authorized, none and 1,500 shares
issued and outstanding, respectively -- --
Common stock, $.0001 par value, 20,000,000
shares authorized, 2,141,801 shares issued
and outstanding 214 214
Additional paid-in capital 5,052,479 5,052,479
Deferred interest (529,751) (588,075)
Stock subscription receivable -- (14,350)
Unearned compensatory stock (24,643) (37,187)
Retained earnings 1,897,131 2,106,835
Accumulated other comprehensive income 3,617 5,924
----------- ----------
Total stockholders' equity 6,399,047 6,525,840
----------- ----------
Total liabilities & stockholders' equity $15,993,200 $14,074,640
=========== ===========
<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 INCOME
Six Months Ended Three Months Ended
April 30, April 30,
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
------- ------- ------- -------
<S> <C> <C> <C> <C>
Assessment products revenues $2,077,865 $1,868,051 $1,034,230 $ 798,736
Educational delivery revenues 2,548,535 -- 1,437,944 --
Instructional revenues 573,532 546,886 371,631 318,457
--------- --------- --------- ---------
Total net revenue 5,199,932 2,414,937 2,843,805 1,117,193
Cost of goods sold 1,971,978 788,791 1,005,402 425,195
--------- --------- --------- ---------
Gross profit 3,227,954 1,626,146 1,838,403 691,998
--------- --------- --------- ---------
Operating expenses:
Selling expenses 1,105,715 719,997 560,356 397,170
General and
administrative expenses 2,183,855 1,189,420 1,149,997 587,439
Bad debt recovery -- (200,000) -- (200,000)
--------- --------- --------- ---------
Total operating expenses 3,289,570 1,709,417 1,710,353 784,609
--------- --------- --------- ---------
(Loss) income from operations (61,616) (83,271) 128,050 (92,611)
Other income (expense):
Interest expense (415,063) (128,779) (199,089) (65,557)
Loss on sale of assets (14,137) -- -- --
Other income 75,200 -- 18,631 --
Investment income 75,897 27,569 35,087 16,705
--------- --------- --------- ---------
Loss before income taxes (339,719) (184,481) (17,321) (141,463)
Income taxes (benefit) (130,015) 8,930 (7,974) 18,902
--------- --------- --------- ---------
Net loss (209,704) (193,411) (9,347) (160,365)
Other comprehensive loss, net of tax:
Unrealized holding loss on
securities arising during
the period (2,307) (1,222) (1,446) (1,163)
--------- --------- --------- ---------
Total comprehensive loss $ (212,011) $ (194,633) $ (10,793) $ (161,528)
========== ========== ========== ==========
Weighted average shares outstanding
Basic 2,141,801 2,117,053 2,141,801 2,122,331
Diluted 2,141,801 2,117,053 2,141,801 2,122,331
Earnings per share
Basic $ (.10) $ (.09) $ -- $ (.08)
Diluted $ (.10) $ (.09) $ -- $ (.08)
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 3
<PAGE> F-4
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
Page 1 of 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
April 30,
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (209,704) $ (193,411)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 461,334 442,152
Deferred interest 58,324 --
Deferred income taxes (88,401) (21,942)
Bad debt recovery -- (200,000)
Financial advisory services 12,544 --
Loss on sale of auto 14,137 --
Changes in operating assets and liabilities:
Accounts receivable 349,797 77,136
Inventories (11,197) (44,662)
Other assets (220,865) (165,405)
Tuition receivable (266,969) --
Deferred revenue (512,808) --
Accounts payable (501,747) (179,842)
---------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES (915,555) (285,974)
---------- ----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (278,179) (87,781)
Test passage bank (241,449) (108,415)
Software development costs -- (69,407)
Pre-publication costs -- (12,385)
Proceeds from sale of marketable securities -- 460,000
Proceeds from sale of auto 13,200 --
Acquisition of subsidiary (1,930,305) --
Deferred acquisition costs (6,718) (105,431)
---------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (2,443,451) 76,581
---------- ----------
<FN>
See notes to consolidated financial statements.
</FN>
F - 4
<PAGE> F-5
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
Page 2 of 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
April 30,
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
FINANCING ACTIVITIES
Net borrowings on loan payable $ (2,108) $ (154,982)
Net borrowings on note payable to bank (150,000) --
Proceeds from exercise of warrants -- 45,125
Repayment of long-term debt (352,920) (463,689)
Stock subscriptions received 14,350 --
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES (490,678) (573,546)
--------- ---------
NET CHANGE IN CASH AND TEMPORARY INVESTMENTS (3,849,684) (782,939)
Cash and temporary investments at
beginning of period 4,980,230 1,156,664
---------- ----------
CASH AND TEMPORARY INVESTMENTS AT
END OF PERIOD $1,130,546 $ 373,725
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 416,445 $ 163,139
========== ==========
Income taxes paid $ 31,379 $ 41,200
========== ==========
SUMMARY OF ACQUIRED SUBSIDIARY:
Assets acquired consisting primarily
of Goodwill $6,916,234 $ --
Liabilities assumed 3,562,828 --
---------- ----------
Net purchase price $3,353,406 $ --
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 5
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------
In the opinion of management, the accompanying consolidated
financial statements of Touchstone Applied Science Associates,
Inc. ("TASA") and subsidiaries contain all adjustments
necessary to present fairly the Company's consolidated financial
position as of April 30, 1999 and October 31, 1998 and the
consolidated results of operations and comprehensive income for
the six and three months ended April 30, 1999 and 1998 and
consolidated cash flows for the six months ended April 30, 1999
and 1998.
The consolidated results of operations for the six and three
months ended April 30, 1999 and 1998 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 1 to the Company's consolidated
financial statements included in its Annual Report on Form 10-KSB
for the fiscal year ended October 31, 1998.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the
Company and its directly and indirectly wholly-owned
subsidiaries, Beck Evaluation & Testing Associates Inc.
("BETA"), Modern Learning Press, Inc. ("MLP"), TASA
Educational Services Corp. ("TESC") and MESI Acquisition Corp.
("MESI"). All material intercompany transactions have been
eliminated in consolidation.
Goodwill
- --------
Included in the MESI acquisition is goodwill totaling $2,957,675.
The goodwill is being amortized over a 30-year period.
Concentration of Credit Risk
- ----------------------------
As part of the acquisition of The Mildred Elley Schools, Inc.
("Elley") by MESI, the Company acquired unsecured student
loans, which are being reflected at net realizable value. The
risk of loss to the Company is the balance owed by the student at
the time of any default. The Company plans to monitor these
loans as closely as possible to mitigate the potential risk.
F - 6
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------
Tuition Receivable
- ------------------
MESI provides alternate financing arrangements for those students
who do not qualify for federal and state financial aid to cover
their tuition. Since student contracts acquired as part of the
Elley acquisition have varying repayment terms which extend
beyond the next 12 month period, these receivables have been
classified as current and non-current with the portion to be
collected beyond the next 12 month period being the non-current
portion.
Revenue Recognition
- -------------------
The Company recognizes tuition revenue at the point in which the
Company has no exposure to future tuition refunds associated with
the respective academic semester.
Reclassifications
- -----------------
Certain prior year information has been reclassified to conform to
the current year's reporting presentation.
NOTE 2 - ISSUANCE OF STOCK OPTIONS
- ----------------------------------
On March 4 1999, the Company granted options to three directors
pursuant to the Company's Directors Option Plan to purchase 2,500
shares each (625 after giving effect to the one-for-four reverse
stock split) at an exercise price of $.50 per share ($2.00 per
share after giving effect to the one for four reverse stock split).
On May 3, 1999, the Company granted an option to purchase 15,000
shares pursuant to the Company's Amended and Restated 1991 Stock
Option Incentive Plan at an exercise price of $1.438 per share.
NOTE 3 - REVERSE STOCK SPLIT
- ----------------------------
On March 4, 1999, the Company effected a one-for-four reverse
split. The effect of the split is being presented retroactively
for all periods presented.
F - 7
SIGNATURES
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 and Chief Executive Officer
By: /s/ DENISE M. STEFANO
----------------------------------------
Denise M. Stefano
Chief Financial Officer
Date: June 14, 1999
Exhibit 10.1
------------
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 26th day of March, 1999 by and
between TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC., a Delaware
corporation with its principal place of business at 4 Hardscrabble
Heights, Brewster, New York 10509 ("TASA") and DENISE STEFANO, an
individual residing at 90 Catskill Avenue, Yonkers, New York 10704
("Employee").
W I T N E S S E T H:
-------------------
WHEREAS, the Corporation recognizes that the current business
environment makes it difficult to attract and retain highly
qualified employees unless a certain degree of security can be
offered to such individuals against personnel changes; and
WHEREAS, the Corporation desires to assure fair treatment of
such qualified employees and thereby increasing their willingness
to remain with the Corporation; and
WHEREAS, The Board of Directors (the "Board") of the
Corporation believes it is essential to provide Employee with such
degree of security and secure the services of Employee for the
Corporation, and, in order to accomplish these objectives, the
Board has caused the Corporation to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements set forth herein, the parties hereto, intending
to be legally bound, agree as follows:
1. Employment and Term. Subject to the terms and conditions
-------------------
of this Agreement, the Corporation agrees to employ Employee, and
Employee hereby accepts employment by the Corporation, for a term
beginning as of the date four weeks after notice of termination of
her present employment is given, and not later than May 3, 1999
(the "Effective Date") and, unless sooner terminated as provided
elsewhere herein, ending on the first anniversary of the Effective
Date; provided, however, that commencing on the date one year after
-----------------
the Effective Date, and on each annual anniversary of such date
(such date and each annual anniversary thereof is hereafter
referred to as the "Renewal Date"), the term of this Agreement
shall be automatically extended so as to terminate one year from
such Renewal Date, unless at least 90 days prior to the Renewal
Date either the Corporation or Employee shall give written notice
to the other that the term of the Agreement shall not be so
extended.
2. Certain Definitions.
-------------------
(a) A reference herein to a section of the Internal
Revenue Code of 1986, as amended (the "Code") or a subdivision
thereof shall be construed to incorporate reference to any section
or subdivision of the Code enacted as a successor thereto, any
applicable proposed, temporary or final regulations promulgated
pursuant to such sections and any applicable interpretation thereof
by the Internal Revenue Service.
(b) A reference herein to a section of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any rule
or regulation promulgated thereunder shall be construed to
incorporate reference to any section of the Exchange Act or any
rule or regulation enacted or promulgated as a successor thereto.
(c) "Subsidiary(ies)" means a company 50% or more of the
voting securities of which are owned by the Corporation or a
subsidiary of the Corporation.
(d) "Employee Benefit Plan" means any written plan
providing benefits for employees of the Corporation or any
Subsidiary.
3. Duties. During the Employment Term, Employee shall serve
------
the Corporation in a capacity as its Chief Financial Officer, or in
such other related capacity or capacities as may be determined by
the Board. Employee shall perform such services as are customary
for the Chief Financial Officer of a publicly traded corporation,
including, but not limited to financial analysis, presentation and
reporting, and financial management, administration and compliance,
and such other services as may be required or requested by the
Board or the President in connection with the operation of the
Corporation and its Subsidiaries. Employee shall report directly
to the President of the Corporation and shall render her services
at the present location of the Corporation or any office or
location of the Corporation as the Board or the President shall
request. During the Employment Term, and excluding any periods of
vacation and sick leave, Employee agrees to devote full time, best
efforts to the business and affairs of the Corporation to discharge
the responsibilities assigned to Employee hereunder, and to perform
faithfully and efficiently such responsibilities. During the
Employment Term it shall not be a violation of this Agreement for
Employee to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal
investments, so long as Employee's duties in connection therewith
do not unreasonably interfere with Employee's duties under this
Agreement. Activities of Employee consistent with this Section 3
shall not permit the Corporation to terminate Employee's employment
for "Cause", as defined below.
4. Compensation.
------------
(a) BASE SALARY. During the Employment Term, the
Corporation shall pay to Employee, in equal installments no less
frequently than twice per month (or at such other intervals as are
in effect from time to time for other officers of the Corporation),
an annual base salary (the "Base Salary") of One Hundred Thousand
($100,000.00) Dollars. Base Salary to be paid by the Corporation
to Employee shall be reviewed by the Board of Directors at least
once annually prior to each anniversary of the Effective Date in
conjunction with a performance review of Employee.
(b) INCENTIVE, SAVINGS, WELFARE BENEFIT PLANS AND
RETIREMENT PLANS. In addition to Base Salary, Employee shall be
eligible to participate in or benefit from, such medical insurance,
life insurance, disability insurance, pension, bonus, profit-
sharing, stock option, stock purchase and any other fringe benefit
plans, practices, programs or policies provided by the Corporation
to Employee in accordance with the terms of such plans, practices,
programs and policies, as amended from time to time.
(c) KEY MAN INSURANCE. Employee agrees that the
Corporation may obtain key man life insurance with respect to
Employee, and in connection therewith, agrees to submit to all
reasonable and customary examinations by the provider of such life
insurance.
(d) EXPENSES. Employee shall be entitled to
reimbursement for all normal and reasonable travel, entertainment
and other expenses necessarily incurred by her in the performance
of her duties hereunder in accordance with the policies, practices
and procedures of the Corporation as amended from time to time.
(e) DISABILITY. Except as hereinafter provided, the
Corporation shall pay Employee for any period, up to a maximum of
three months, during the Employment Term in which she is unable
fully to perform her duties because of physical or mental
disability or incapacity, an amount equal to the Base Salary due
her for such period pursuant to Section 4(a), less the aggregate
amount of all income disability benefits which for such period she
may receive by reason of (i) any group health insurance plan, or
disability insurance plan paid for by the Corporation, in each case
which is intended to function as a salary replacement plan, (ii)
any applicable compulsory state disability law, (iii) the Federal
Social Security Act, (iv) any applicable workmen's compensation law
or similar law and (v) any plan towards which the Corporation or
any subsidiary or affiliate of the Corporation (including any
predecessor of any thereof) has contributed or for which it has
made payroll deductions, such as group accident or health policies,
other than those which reimburse for actual medical expenses.
(f) VACATION. During the Employment Term, Employee
shall be entitled to paid vacation in accordance with the plans,
practices, policies and programs of the Corporation as amended from
time to time.
5. Stock Options.
-------------
(a) As part of the consideration to be paid to Employee
for her services hereunder, Employee shall be eligible to
participate in any stock incentive plan adopted by the Corporation
(the "Plan") for which an executive level employee may participate.
(b) The Corporation hereby agrees that it shall cause to
be filed with the Securities and Exchange Commission a registration
statement on Form S-8 (or equivalent form as may be in effect at
such time) with respect to all options theretofore granted to
Employee under the Plan. The Corporation covenants that it will
keep such registration statement current until Employee is no
longer employed by the Corporation. The Corporation hereby agrees
that, for so long as either the Corporation does not have an
effective registration statement on Form S-8 or the Corporation has
an effective registration statement on Form S-8 but Employee is
restricted in her ability to resell shares acquired pursuant to the
exercise of options because of the provisions of General
Instruction C.2(b) to Form S-8, Employee shall have "piggyback"
registration rights with respect to the options granted to Employee
under the Plan and the shares underlying such options.
(c) As an incentive to enter into this Agreement, the
Corporation, immediately upon the Effective Date of this Agreement,
shall deliver to Employee a Stock Option Agreement pursuant to its
Amended and Restated 1991 Stock Option Incentive Plan, granting to
Employee ten (10) year options for 15,000 shares of the common
stock of the Corporation at fair market value as of the Effective
Date, exercisable one year after the anniversary of the date of the
grant.
6. Rights of Termination.
---------------------
(a) CAUSE. During the Employment Term, the Corporation
shall have the right, at any time effective upon notice to
Employee, to terminate Employee's employment for "Cause" (as
hereinafter defined). For purposes of this Agreement, "Cause"
shall mean (i) an act or acts of personal dishonesty engaged in by
Employee, (ii) violations by Employee of Employee's obligations
under Section 3 of this Agreement which are not remedied within
thirty (30) days after receipt of written notice from the
Corporation; (iii) commission by Employee of a felony or any act of
embezzlement or misappropriation of funds, (iv) material breach of
any representation or warranty hereunder or fraud or negligence in
the performance of her duties hereunder, and (v) an inability in
the reasonable opinion of the President of the Corporation, to work
cohesively with other key personnel if not remedied within thirty
(30) days after written notice from the Corporation.
(b) DISABILITY; DEATH. In the event that Employee, due
to physical or mental disability or incapacity, is unable to
substantially perform her duties hereunder for a period of three or
more successive months, the Corporation or Employee shall have the
right to terminate this Agreement and Employee's employment
hereunder upon 30 days' prior written notice and termination shall
be effective on the 30th day after receipt of such notice by the
Employee (the "Disability effective date"). In the event that
Employee is able to and recommences rendering services and
substantially performing her duties hereunder within such 30-day
notice period, Employee shall be reinstated and such notice shall
be without further force or effect. If Employee dies during the
Term, this Agreement shall terminate immediately upon her death.
(c) NOTICE OF TERMINATION. Any termination of
Employee's employment by the Corporation or by Employee shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 16 of this Agreement.
(d) DATE OF TERMINATION. "Date of Termination" means
the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided, however, that if
Employee's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of
Employee or the Disability effective date, as the case may be.
7. Effects of Termination. In the event that Employee's
----------------------
employment is terminated pursuant to Section 6 hereof, Employee's
employment hereunder shall terminate without further obligations to
Employee, other than those obligations accrued or earned and vested
(if applicable) by Employee through the Date of Termination,
including for this purpose all "Accrued Obligations", defined as
those obligations accrued or earned and vested (if applicable) by
Employee as of the Date of Termination, including, for this purpose
(i) Employee's pro rata Base Salary accrued but unpaid as of the
Date of Termination, (ii) any compensation previously deferred by
Employee (together with any accrued earning thereon) and not yet
paid by the Corporation and any accrued vacation pay not yet paid
by the Company and (iii) if applicable, all amounts payable to the
estate or designated beneficiaries of Employee under any pension,
savings, life insurance or other plans, practices, policies and
programs of the Corporation, and/or all other amounts payable
pursuant to Section 4 hereof. In addition:
(i) the Corporation shall pay to Employee all
Accrued Obligations such that the Accrued Obligations specified in
Section 4 hereof, shall be paid to Employee in a lump sum in cash
within 30 days of the Date of Termination, and the other Accrued
Obligations shall be paid in accordance with Employee's specific
elections pursuant to, and otherwise in accordance with the terms
of, any plan, practice, policy or program providing benefits
forming a part of the Accrued Obligations;
(ii) all then non-exercisable options shall
immediately and automatically terminate, and
(iii) any registration rights theretofore
granted which have not been invoked with respect to shares of
Common Stock of the Corporation either acquired by Employee
pursuant to the exercise of stock options or underlying vested
options shall immediately and automatically terminate.
8. Confidentiality.
---------------
(a) Employee understands and acknowledges that as a
result of Employee's employment with the Corporation, and
involvement with the business of the Corporation, she is or shall
necessarily become informed of, and have access to, confidential
information of the Corporation including, without limitation,
inventions, patents, patent applications, trade secrets, technical
information, know-how, plans, specifications, financial information
and business strategy, marketing plans and information, pricing
information, identity of customers and prospective customers and
identity of suppliers, and that such information, even though it
may have been or may be developed or otherwise acquired by
Employee, is the exclusive property of the Corporation to be held
by Employee in trust and solely for the Corporation's benefit.
Employee shall not at any time, either during or subsequent to her
employment hereunder, reveal, report, publish, transfer or
otherwise disclose to any person, corporation or other entity, or
use, any of the Corporation's confidential information, without the
written consent of the Board, except for use on behalf of the
Corporation in connection with the Corporation's business, and
except for such information which legally and legitimately is or
becomes of general public knowledge from authorized sources other
than Employee.
(b) Upon the termination of her employment with the
Corporation for any reason, Employee shall promptly deliver to the
Corporation all drawings, manuals, letters, notes, notebooks,
reports and copies thereof and all other materials, including,
without limitation, those of a secret or confidential nature,
relating to the Corporation's business which are in Employee's
possession or control.
(c) For purposes of this Section 8 and Section 9, the
term "Corporation" includes the Corporation and any other
predecessor corporation, and affiliates (including, without
limitation, distributors, licensees, franchisees, Subsidiaries and
joint ventures).
(d) Employee represents and warrants to the Corporation
that the execution and delivery of this Agreement shall not
conflict with, or violate the terms of, or constitute a breach of
any other agreement or document to which she is a party, including,
but not limited to any employment, consulting, non-competition,
restrictive covenant or other form of confidentiality agreement.
9. Non-Competition. Employee agrees that, for a period
---------------
commencing on the date hereof and ending one year after the
termination of her employment with the Corporation for any reason,
she shall not, anywhere in the United States (or for such lesser
area or such lesser period as may be determined by a court of
competent jurisdiction to be a reasonable limitation on the
competitive activity of Employee) directly or indirectly:
(a) solicit or attempt to solicit business of any
customers of the Corporation or any of its Subsidiaries (including
prospective customers solicited by the Corporation or any of its
Subsidiaries during the term of her employment) for products or
services the same or similar to those offered, sold, produced or
under development by the Corporation or any of its Subsidiaries
during the term of her employment therewith or dealt in by Employee
during her employment with the Corporation;
(b) solicit or attempt to solicit for any business
endeavor any employee of the Corporation or any of its
Subsidiaries;
(c) interfere with any business relationship between the
Corporation or any of its Subsidiaries and any other person or
entity;
(d) use the name of the Corporation or any of its
Subsidiaries or a name similar thereto; or
(e) render any services as an officer, director,
employee, partner, consultant or otherwise to, or have any interest
as a stockholder, partner, lender or otherwise in, any entity which
is engaged in activities which, if performed by Employee would
violate this Section 9.
10. Remedies and Survival. Because the Corporation does not
---------------------
have an adequate remedy at law to protect its interest in its trade
secrets, privileged, proprietary or confidential information and
similar commercial assets, or its business from Employee's
competition, the Corporation shall be entitled to injunctive
relief, in addition to such other remedies and relief that would,
in the event of a breach of the provisions of Sections 8 or 9, be
available to the Corporation. The provisions of Sections 8 and 9
and this Section 10 shall survive any termination of Employee's
employment with the Corporation for any reason whatsoever.
11. Set-off. The payments and performance by the Corporation
-------
as provided for in this Agreement shall be subject to any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Corporation may have against Employee.
12. Non-exclusivity of Rights. Except as specifically
-------------------------
provided in this Agreement, it is intended that Employee's present
and future participation in any benefit, bonus, incentive or other
plans, practices, policies or programs provided by the Corporation
and for which Employee or Employee's family may otherwise qualify
and be eligible be limited or unavailable. Nothing contained in
this Agreement, however, shall limit or otherwise affect such
rights as Employee may have under any stock option agreements with
the Corporation. Amounts which are vested benefits or which
Employee is otherwise entitled to receive at or subsequent to the
Date of Termination shall be payable in accordance with the plan,
practice, policy or program of the Corporation under which Employee
has such entitlement, if any.
13. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties hereto with respect to its subject
matter, merges and supersedes any prior or contemporaneous
agreements or understandings with respect to its subject matter,
and shall not be modified or terminated except by another agreement
in writing executed by the Corporation and Employee. Failure of a
party to enforce one or more of the provisions of this Agreement or
to require at any time performance of any of the obligations hereof
shall not be construed to be a waiver of such provisions by such
party nor to in any way affect the validity of this Agreement or
such party's right thereafter to enforce any provision of this
Agreement, nor to preclude such party from taking any other action
at any time which it would legally be entitled to take.
14. Severability. If any provision of this Agreement is held
------------
to be invalid or unenforceable by any court or tribunal of
competent jurisdiction, the remainder of this Agreement shall not
be affected by such judgement and such provision shall be carried
out as nearly as possible according to its original terms and
intent to eliminate such invalidity or unenforceability.
15. Successors and Assigns. This Agreement is personal to
----------------------
Employee and without the prior written consent of the Corporation
shall not be assignable by Employee. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal
representatives or Successors in Interest. This Agreement shall
inure to the benefit of and be binding upon the Corporation and its
successors and assigns. As used in the Agreement, "Corporation"
shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes
and agrees to perform this Agreement by operation of law or
otherwise.
16. Communications and Notices. All notices and other
--------------------------
communications under this Agreement shall be in writing and shall
be deemed to have been duly given three (3) business days after
they are mailed in any United States post office enclosed in a
registered or certified postage-paid envelope and addressed as set
forth at the beginning of this Agreement, or to such other address
as any party may specify by notice to the other parties, or
delivered by Federal Express or a similar overnight courier to such
address with evidence of delivery; provided, however, that any
notice of change of address shall be effective only upon receipt.
17. Construction; Counterparts. The headings contained in
--------------------------
this Agreement are for convenience only and shall in no way
restrict or otherwise affect the construction of the provisions
hereof. References in this Agreement to Sections are to the
sections of this Agreement. This Agreement may be executed in
multiple counterparts, each of which shall be an original and all
of which together shall constitute one and the same instrument.
18. Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
Employee's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such
provision. This Agreement contains the entire understanding of the
Corporation and Employee with respect to the subject matter hereof
but does not supersede or override the provisions of any stock
option, employee benefit or other plan, program, policy or practice
in which Employee is a participant or under which Employee is a
beneficiary.
19. Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned parties have executed and
delivered this Agreement as of the date first above written.
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By: /s/ ANDREW L. SIMON
--------------------------------
Name: Andrew L. Simon
Title: President
EMPLOYEE:
/s/ DENISE STEFANO
--------------------------------
Denise Stefano
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
EXHIBIT II
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
Six Months Ended Three Months Ended
April 30, April 30,
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic earnings:
Net loss $ (209,704) $ (193,411) $ (9,347) $(160,365)
Shares:
Weighted common shares
outstanding 2,141,801 2,117,053 2,141,801 2,122,331
Warrants to consultants -- -- -- --
Employee stock options -- -- -- --
Consultant stock options -- -- -- --
--------- --------- --------- ---------
Total weighted shares
outstanding 2,141,801 2,117,053 2,141,801 2,122,331
--------- --------- --------- ---------
Primary earnings per
common share $ (.10) $ (.09) $ -- $ (.08)
========== ========== ========== ==========
Diluted earnings:
Net loss $ (209,704) $ (193,411) $ (9,347) $ (160,365)
Shares:
Weighted common shares
outstanding 2,141,801 2,117,053 2,141,801 2,122,331
Warrants to consultants -- -- -- --
Employee stock options -- -- -- --
Consultant stock options -- -- -- --
--------- --------- --------- ---------
Total weighted shares
outstanding 2,141,801 2,117,053 2,141,801 2,112,331
--------- --------- --------- ---------
Diluted earnings per
common share $ (.10) $ (.09) $ -- $ (.08)
========== ========== ========== ==========
</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 April 30, 1999 and is qualified in its
entirety by reference to such report on Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> APR-30-1999
<CASH> 1,130,546
<SECURITIES> 186,178
<RECEIVABLES> 3,190,335
<ALLOWANCES> 0
<INVENTORY> 490,066
<CURRENT-ASSETS> 5,405,564
<PP&E> 3,387,574
<DEPRECIATION> 1,279,678
<TOTAL-ASSETS> 15,993,200
<CURRENT-LIABILITIES> 2,063,697
<BONDS> 7,530,456
0
0
<COMMON> 214
<OTHER-SE> 6,398,833
<TOTAL-LIABILITY-AND-EQUITY> 15,993,200
<SALES> 5,199,932
<TOTAL-REVENUES> 5,351,029
<CGS> 1,971,978
<TOTAL-COSTS> 3,289,570
<OTHER-EXPENSES> 14,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415,063
<INCOME-PRETAX> (339,719)
<INCOME-TAX> (130,015)
<INCOME-CONTINUING> (209,704)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (209,704)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
