<PAGE> 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, 1996
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 10, 1996
--------------------- -----------------------------------
$ .01 Par Value 5,247,730
<PAGE> 2
TST/IMPRESO, INC. AND SUBSIDIARIES
FORM 10 Q
MAY 31, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of May 31,1996
(Unaudited) and August 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Interim Consolidated Statements of Operations for the
Nine Months Ended May 31, 1996 (Unaudited) and 1995 . . . . . . . . . . . . . . . . . . . . 4
Interim Consolidated Statements of Cash Flows for the
Nine Months Ended May 31, 1996 (Unaudited) and 1995 . . . . . . . . . . . . . . . . . . . . 5
Notes to Interim Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
1
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PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
May 31, August 31,
1996 1995
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,054,322 $ 92,081
Trade accounts receivable, net of allowance
for doubtful accounts of $250,000 at May 31,
1996 and $200,000 at August 31, 1995 3,555,199 3,533,022
Inventories 6,147,760 6,613,504
Prepaid expenses 79,589 38,197
------------- -------------
Total current assets 11,836,870 10,276,804
Property, plant, and equipment, at cost 12,464,530 11,825,798
Less accumulated depreciation (8,279,079) (8,005,330)
------------- -------------
Net property, plant, and equipment 4,185,451 3,820,468
Other Assets:
Deposits and other 353,456 483,985
Investments 4,954 4,954
------------- -------------
$ 16,380,731 $ 14,586,211
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
2
<PAGE> 4
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS - (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
May 31, August 31,
1996 1995
-------------- -------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,165,566 $ 1,016,129
Accrued liabilities 346,564 325,545
Accrued bonuses 58,000 540,539
Accrued income taxes 98,359 168,010
Current maturities of long-term debt 48,877 83,583
Line of credit 428,067 3,843,083
Pre-petition liabilities
Current maturities of pre-petition accounts payable 25,931 202,940
Current maturities of long-term debt 73,481 586,853
-------------- -------------
Total current liabilities 2,244,845 6,766,682
Deferred income tax liability 513,724 490,787
Long-term portion of pre-petition debt, net of current maturities 1,124,869 3,563,725
Long-term debt, net of current maturities 11,906 39,192
-------------- -------------
Total liabilities 3,895,344 10,860,386
-------------- -------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; 0 shares
issued and outstanding at May 31, 1996 and August 31, 1995
Common stock, $.01 par value; 15,000,000 shares authorized; 5,247,730
shares issued and outstanding at May 31, 1996 and 4,000,000
shares issued and outstanding at August 31, 1995 52,477 40,000
Warrants 110 ---
Additional paid-in capital 5,964,889 ---
Retained earnings 6,467,911 3,685,825
-------------- -------------
Total stockholders' equity 12,485,387 3,725,825
-------------- -------------
Total liabilities and stockholders' equity $ 16,380,731 $ 14,586,211
-------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
3
<PAGE> 5
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF OPERATION S
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 11,745,855 $ 11,797,867 $ 37,070,993 $ 26,657,153
Cost of sales 9,269,941 8,478,055 29,481,558 20,479,522
------------ ------------- ------------ ------------
Gross profit 2,475,914 3,319,812 7,589,435 6,177,631
Other costs and expenses:
Selling, general and administrative 1,108,464 1,618,645 3,363,605 3,220,776
Interest expense 74,003 269,182 335,573 770,834
Other (income) expense, net 19,319 72,263 55,355 91,558
------------ ------------- ------------ ------------
Total other costs and expenses 1,201,786 1,960,090 3,754,533 4,083,168
Income before income tax expense and 1,274,128 1,359,722 3,834,902 2,094,463
extraordinary gain
Income tax expense:
Current 424,964 38,581 1,324,308 154,670
Deferred 7,057 286,290 22,937 286,290
------------ ------------- ------------ ------------
Income before extraordinary gain 842,107 1,034,851 2,487,657 1,653,503
Extraordinary gain from debt reduction and
restructuring due to bankruptcy, net of tax --- 698,795 294,430 698,795
effect of $55,843 and $159,377 respectively
------------ ------------- ------------ ------------
Net income $ 842,107 $ 1,733,646 $ 2,782,087 $ 2,352,298
------------ ------------- ------------ ------------
Income per share (primary and fully diluted):
Income before extraordinary gain $ 0.16 $ 0.26 $ 0.49 $ 0.41
Extraordinary gain --- 0.18 0.06 0.18
------------ ------------- ------------ ------------
Net income per common share $ 0.16 $ 0.44 $ 0.55 $ 0.59
------------ ------------- ------------ ------------
Weighted average shares outstanding 5,247,730 4,000,000 5,038,141 4,000,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
May 31, May 31,
1996 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,782,087 $ 2,352,298
Adjustments to reconcile net income to net cash
flow provided by operating activities-
Extraordinary gain (294,430) (698,795)
Depreciation and amortization 273,749 312,475
Deferred income taxes 22,937 286,290
Gain on sale of assets --- ---
Decrease (increase) in restricted cash --- ---
(Increase) decrease in accounts receivable, net (22,177) (885,925)
(Increase) decrease in inventory 465,744 (2,072,948)
(Increase) decrease in prepaid expenses and other (41,392) (70,258)
Increase (decrease) in cash overdraft --- 260,650
Increase (decrease) in accounts payable 149,437 625,510
Increase (decrease) in accrued liabilities 21,019 87,761
Increase (decrease) in accrued bonuses (482,539) 577,000
Increase in accrued income taxes (69,651) ---
-------------- -------------
Net cash provided by (used in) operating activities 2,804,784 774,058
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (638,732) (20,583)
Sales of property, plant, and equipment, net --- 3,295
Changes in investments, net --- 4,541
Change in other non-current assets, net 130,529 (109,117)
-------------- -------------
Net cash provided by (used in) investing activities (508,203) (121,864)
--------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowing (payments) on line of credit (3,415,016) 553,655
Payments on pre-petition debt (2,834,807) (1,111,188)
Additions (payments) on post-petition debt, net (61,992) (61,783)
Sale of common stock 5,977,475 ---
-------------- -------------
Net cash provided by (used in) financing activities (334,340) (619,316)
-------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,962,241 32,878
Cash and cash equivalents, beginning of period 92,081 30,243
-------------- -------------
Cash and cash equivalents, end of period $ 2,054,322 $ 63,121
-------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE> 7
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 for commercial
and home use in domestic and international markets. 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").
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, 1996, and its results of
operations for the nine months ended May 31, 1996 and 1995. Results of the
Company's operations for the interim period ended May 31, 1996, 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, for the fiscal year
ended August 31, 1995 and 1994, included in the Company's Form 10-K (the
"Company's Form 10-K") File Number 0-26774 as filed with the SEC on
November 30, 1995 . 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.
3. EXTRAORDINARY ITEMS
In the quarter ended May 31, 1995, the Company recorded an
extraordinary gain totalling $698,795, net of related income tax expense of
$55,843. The extraordinary gain resulted primarily from the Company's early
extinguishment of a note payable to a financial institution with a face
amount of $1,017,480 for a negotiated discounted amount of $350,000.
In the quarter ended November 30, 1995, the Company recorded an
extraordinary gain totalling $132,381, net of related income tax expense of
$75,569. The extraordinary gain primarily resulted from the Company's early
extinguishment of a note payable to a financial institution with a face
amount of $1,213,933 for a negotiated discounted amount of $1,000,000.
In the quarter ended February 29, 1996, the Company recorded an
extraordinary gain totaling $162,049, net of related income tax expense of
$83,808. The extraordinary gain resulted from the Company's early
extinguishment of a note payable to a financial institution with a face
amount of $1,616,883 for a
6
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negotiated discounted amount of $1,371,026. The Company utilized proceeds
from its initial public offering along with income from operations to
extinguish these debts.
4. 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.
Inventory consisted of the following:
<TABLE>
<CAPTION>
May 31, August 31,
1996 1995
----------- -----------
<S> <C> <C>
Finished Goods $ 3,345,597 2,968,633
Raw Materials 2,415,101 3,165,638
Supplies 350,617 403,679
Work-in-process 36,445 75,554
----------- -----------
Total Inventories $ 6,147,760 $ 6,613,504
----------- -----------
</TABLE>
5. DEBT
Debt as of May 31, 1996 and August 31, 1995, is as follows:
<TABLE>
<CAPTION>
May 31, August 31,
1996 1995
----------- -----------
<S> <C> <C>
Post-petition-
Note payable to a commercial financial corporation under
revolving credit line maturing May 1996 (see discussion below),
secured by inventory, trade accounts receivable, equipment, and
a personal guarantee by the trustee of a trust which is a majority
shareholder, interest payable monthly at prime plus 2.75%
(9.25% at May 31, 1996 and 11.5% at August 31, 1995). $ 428,067 $ 3,843,083
Note payable to a commercial financial corporation, payable
in monthly installments, security, interest and maturity
date, same as above. 60,783 122,775
Pre-petition-
Note payable to a financial institution, paid in full, December 1995 --- 1,735,190
Note payable to a financial institution, paid in full, November, 1995 --- 1,220,636
Pre-petition taxes, payable annually on May 31 at 6% interest
May 31, 1999 77,165 202,940
</TABLE>
7
<PAGE> 9
<TABLE>
<S> <C> <C>
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 634,393 643,243
Other notes payable, secured by a personal guarantee by the
trustee of a trust which is a majority shareholder, and certain
property, plant, and equipment, maturity dates ranging from 1996
to 2023, interest rates ranging from 4% to 10.5% 512,723 551,509
----------- -----------
Total 1,713,131 8,319,376
Less-current maturities 148,289 4,716,459
----------- -----------
$ 1,564,842 $ 3,602,917
----------- -----------
</TABLE>
The revolving credit line matured on May 31, 1996. The Company successfully
negotiated with its current credit line lender to extend the line through
May 1997 with a lower interest rate (prime + 1%) and substantial decreases
in loan costs.
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
May 31, May 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash paid during the period for:
Interest $ 335,573 $ 770,834
Income taxes 1,553,336 230,000
</TABLE>
7. STOCK OPTIONS
During the quarter ended November 30, 1995, the Company granted
293,800 options to certain employees, a 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 nine months ended May 31, 1996. On April 4,1996,
72,300 of the options granted under the Plan became exercisable. The shares
issuable on exercise of these options are restricted from public sale until
April 4,1997, by the Company's Agreement with the Underwriters.
On January 2, 1996, the Company elected two new outside Directors
to its Board of Directors. In accordance with the Stock Option 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. Remaining options available
for grant under the Plan, including all forfeited options, total 107,800.
In addition to options under the Plan, in October 1995 and in
connection with the Company's initial public offering ("IPO"), the Company
granted an option to purchase up to 147,730 shares (over-allotment option)
to its underwriters at $6.00 per share. The option was exercised in full on
November 14, 1995.
Also in connection with the Company's IPO, the Company issued
warrants to its underwriters for
8
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$.001 per warrant to purchase an aggregate of 110,000 shares of Common
Stock. The warrants become exercisable on October 5, 1996, for four years
at an exercise price of $7.20 per share.
The Company also issued warrants to two consultants. One warrant
for 10,000 shares of Common Stock is exercisable for a period of five years
from December 1, 1995, at an exercise price of $7.20 per share. The other
warrant, also for 10,000 shares of Common Stock, becomes exercisable
October 5, 1996 for a period of four years at an exercise price of $6.60
per share.
8. 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 as the dilution of these
equivalents is not considered material.
9. SUPPLEMENTAL EARNINGS PER SHARE DATA
In October 1995, the Company 's registration statement on Form S-1
became 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 each respective period.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, 1996 May 31, 1996
------------------ -----------------
<S> <C> <C>
Supplemental income per share (primary and
fully diluted):
Income before extraordinary gain $ 0.16 $ 0.47
Extraordinary gain --- 0.06
------------- -----------
Net income per common share $ 0.16 $ 0.53
------------- -----------
Supplemental weighted average shares outstanding 5,247,730 5,247,730
------------- -----------
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED MAY 31, 1996 AND MAY 31,
1995
Net Sales---Net sales for the three months ended May 31, 1996, decreased
$52,000, or .4%, as compared to the corresponding period of the prior year
as a result of pressure in the marketplace to lower sales prices. Net sales
for the nine months ended May 31, 1996, increased $10.4 million, or 39.1%
as compared to the corresponding period of the prior year as a result of an
expansion in the Company's customer base.
Gross Profit---Gross profit for the three months ended May 31, 1996,
decreased $844,000 or 25.4%,as compared to the corresponding period of the
prior year. Gross profit for the nine months ended May 31, 1996, increased
$1.4 million, or 22.9% as compared to the corresponding period of the prior
year. The de-crease in gross profit for three months ended May 31,1996, was
primarily the result of increased material costs. The Company's gross
profit margin was 21.1% for the three month period ended May 31, 1996, as
compared
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to 28.1% for the corresponding period of the prior year. The Company's
gross profit margin for the nine months ended May 31, 1996, was 20.5% as
compared to 23.2% for the corresponding period of the prior year.
Selling General and Administrative Expenses---SG&A expenses for the three
months ended May 31, 1996, were $1.1 million, or 9.4% of net sales, as
compared to $1.6 million, or 13.7% of net sales, for the corresponding
period of the prior year. SG & A expenses for the nine months ended May 31,
1996, were $3.4 million, or 9.1% of net sales, as compared to $3.2 million,
or 12.1% for the corresponding period of the prior year. SG & A Expenses as
a percentage of net sales declined during these periods because of
reductions in accrued liabilities.
Income before taxes and extraordinary gain---Income before taxes and
extraordinary gain for the three months ended May 31, 1996, was $1.3
million as compared to $1.4 million for the corresponding period of the
prior year, a decrease of $86,000 or 6.3%. Income before taxes and
extraordinary gain for the nine months ended May 31, 1996, was $3.8 million
as compared to $2.1 million for the corresponding period of the prior year,
an increase of $1.7 million, or 83.1%. The decrease for the quarter ended
May 31, 1996 was due to declines in sales prices. The increase for the nine
months ended May 31, 1996 was primarily due to increased sales volume,
increased gross profits, improved operating efficiencies and a decline in
SG & A expenses as a percent of net sales.
Extraordinary gain---The Company recorded an extraordinary gain totalling
$699,000, net of related income tax expense of $56,000, for the three
months ended May 31,1995; there was no such gain for the corresponding
period of the current year. The Company recorded an extraordinary gain
totalling $294,000, net of related income tax expense of $159,000 for the
nine months ended May 31,1996. The gains resulted from the Company's early
payment of prepetition notes payable for discounted amounts.
Income Taxes---The Company's provision for income taxes was $432,000 for
the three months ended May 31, 1996, as compared to $381,000 for the
corresponding period of the prior year. The Company's provision for income
taxes was $1.5 million for the nine months ended May 31, 1996, as compared
to $497,000 for the corresponding period of the prior year. The increase
was primarily due to increased pre-tax profits, and utilization of NOL
during the fiscal year ended August 31, 1995. The effective tax rate for
the nine month period ended May 31, 1996, was 35.1% as compared to 15.8%
for the corresponding period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.8 million for the nine
months ended May 31, 1996, as compared with $774,000 for the corresponding
period of the prior year. The increase in the Company's net cash provided
by operations primarily related to increases in net income.
Net cash used in investing activities was $508,000 for the nine months
ended May 31, 1996, as compared with $122,000 used in investing activities
for the corresponding period of the prior year. The Company's net cash used
in investing activities primarily related to the purchase of new equipment.
Net cash used in financing activities was $334,000 for the nine months
ended May 31, 1996, as compared with $619,000 used in financing activities
for the corresponding period of the prior year. Proceeds from issuance of
Common Stock have been primarily used to pay down the Company's line of
credit and to extinguish pre-petition notes at discounted amounts.
Working capital increased to $9.6 million at May 31, 1996, from $3.5
million at August 31, 1995, an increase of $6 million or 173.3%; this
increase is primarily attributable to the pay down of the Company's line of
credit to a balance of $428,000 at May 31, 1996, from $3.8 million at
August 31, 1995.
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<PAGE> 12
In May 1993, the Company entered into an agreement with a bank for a three-
year, secured, revolving line of credit, which is secured by, among other
things, inventory, trade receivables, equipment and a personal guarantee of
Mr. Sorokwasz. Available borrowings under this line of credit, which
accrues interest at the prime rate of interest plus 2.75% (9.25% at May 31,
1996), are based upon specified percentages of eligible accounts receivable
and inventories. As of May 31, 1996, there was a $4.6 million borrowing
capacity remaining under the $5 million revolving line of credit. In March
1996, the Company was successful in negotiating an extension of this
revolving line of credit through May 1997.
The Company anticipates executing a lease agreement in the fourth quarter
for the financing of three large pieces of equipment. The Company believes
that the funds available under the facility, trade credit and internally
generated funds will be sufficient to satisfy all other requirments for
working capital and capital expenditures through the fiscal year 1997.
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 an aggregate of $6.0 million in inventory. In
accordance with the Company's strategic raw material purchasing policies
and in order to obtain preferential pricing, the Company waives the rights
to suppliers' inventory protection agreements ( including price protection
and inventory return rights). 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 quarter prices for the raw paper materials used
by the Company for manufacturing certain products declined at a rapid
pace. As a result the Company had to lower its selling prices on those
products to specific customers which resulted in decreased gross profit and
net income for the third quarter. At the end of the third quarter prices
for those raw materials leveled and began to increase. Management believes
the increases in the raw material prices will not continue on the upward
trend, and that the current price increases will successfully be passed
onto the customers of the Company in the fourth quarter.
MANUFACTURING CAPACITY
A delay in the expansion plans of the Company (see "Legal Proceedings") to
acquire additional manufacturing equipment during the first and second
quarters of 1996 affected the Company's ability to achieve projected
revenue figures for the third quarter. Management expects the delay to be
temporary.
SEASONALITY
The Company generally experiences a relative slowness in sales during the
summer months, which may adversely affect the Company's third and fourth
fiscal quarter results in relation to sequential quarter performance.
INFLATION
The Company believes that inflation has 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.
11
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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. The suit alleges breach of contract, breach of warranties,
and anticipatory breach of contract.The Company accepted delivery of the
first system at its Dallas location in November 1995. The equipment has
failed to meet contract specifications and, therefore, the Company
cancelled delivery of the other two systems. The Company has contracted
with another manufacturer of custom designed sheet processing systems for
two systems with delivery anticipated on September 23,1996, and October
7,1996, at the Company's Texas and West Virginia plants, respectively. The
six month delay in the Company's ability to manufacture additional tonnage
into cutsheet products with new equipment has slowed down projected growth
for the second and third quarters, but Management believes that the
ultimate resolution of this matter will not have a material effect on the
Company's long term financial condition.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit
No.
-------
27 Financial Data Schedule
b) No reports on Form 8-K were filed during the quarter ended May 31, 1996.
12
<PAGE> 14
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 11, 1996
TST/ Impreso, Inc.
(Registrant)
/s/ Marshall Sorokwasz
---------------------------------------
Marshall Sorokwasz
President, Chief Executive Officer,
Treasurer and Director
/s/ Susan Atkins
---------------------------------------
Susan Atkins
Vice President and Chief
Financial Officer
13
<PAGE> 15
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- - ----------- ----------------------
27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 2,054,322
<SECURITIES> 0
<RECEIVABLES> 3,805,199
<ALLOWANCES> 250,000
<INVENTORY> 6,147,760
<CURRENT-ASSETS> 11,836,870
<PP&E> 12,464,530
<DEPRECIATION> 8,279,079
<TOTAL-ASSETS> 16,380,731
<CURRENT-LIABILITIES> 2,244,845
<BONDS> 0
<COMMON> 52,587
0
0
<OTHER-SE> 12,432,800
<TOTAL-LIABILITY-AND-EQUITY> 16,380,731
<SALES> 37,070,993
<TOTAL-REVENUES> 37,070,993
<CGS> 29,481,558
<TOTAL-COSTS> 29,481,558
<OTHER-EXPENSES> 55,355
<LOSS-PROVISION> 250,000
<INTEREST-EXPENSE> 335,573
<INCOME-PRETAX> 3,834,902
<INCOME-TAX> 1,347,245
<INCOME-CONTINUING> 2,487,657
<DISCONTINUED> 0
<EXTRAORDINARY> 294,430
<CHANGES> 0
<NET-INCOME> 2,782,087
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
