<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 FEBRUARY 28, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 0-26774
TST/IMPRESO, INC.
(exact name of registrant as specified in it's 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 (972) 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.
<TABLE>
<S> <C>
Class of Common Stock Shares outstanding at April 10, 1997
--------------------- -------------------------------------
$ .01 Par Value 5,247,730
</TABLE>
<PAGE> 2
TST/IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
FEBRUARY 28, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of February 28,
1997 (Unaudited) and August 31, 1996 . . . . . . . . . . . . 2
Interim Consolidated Statements of Operations for the
Six Months Ended February 28, 1997 and February 29, 1996
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . 4
Interim Consolidated Statements of Cash Flows for the
Six Months Ended February 28, 1997 and February 29, 1996
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Interim Consolidated Financial Statements . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
1
<PAGE> 3
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
February 28, August 31,
1997 1996
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,658,394 $ 2,368,395
Trade accounts receivable, net of allowance
for doubtful accounts of $130,000 at
February 28, 1997 and $163,633 at August 31, 1996 3,075,109 $ 2,890,411
Investments -- 250,000
Inventories 8,283,515 6,343,731
Prepaid expenses and other 292,025 301,731
------------ ------------
Total current assets 14,309,043 12,154,268
Property, plant, and equipment, at cost 12,867,302 12,465,865
Less-Accumulated depreciation (8,584,607) (8,372,733)
------------ ------------
Net property, plant, and equipment 4,282,695 4,093,132
Other assets:
Deposits and other 239,457 708,751
Investments 4,954 4,954
------------ ------------
Total assets $ 18,836,149 $ 16,961,105
------------ ------------
</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>
February 28, August 31,
1997 1996
----------- -----------
Current liabilities:
<S> <C> <C>
Accounts payable $ 2,178,147 $ 1,563,662
Accrued liabilities 201,239 239,886
Accrued bonuses -- 175,000
Accrued income taxes 13,679 69,235
Current maturities of long-term debt 1,700 36,769
Line of credit 1,644,415 138,391
liabilities-
Current maturities of prepetition taxes payable 25,722 25,722
Current maturities of long-term debt 73,230 74,975
----------- -----------
Total current liabilities 4,138,132 2,323,640
Deferred income tax liability 581,437 567,618
Long-term portion of prepetition debt, net of current maturities 1,053,955 1,088,480
Long-term debt, net of current maturities 3,511 3,309
----------- -----------
Total liabilities 5,777,035 3,983,047
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized; 0 shares
issued and outstanding at February 28, 1997, and August 31, 1996 -- --
Common Stock, $.01 par value; 15,000,000 shares authorized 5,247,730
shares issued and outstanding at February 28, 1997, and
August 31, 1996 52,477 52,477
Warrants 110 110
Additional paid-in capital 5,937,896 5,937,896
Retained earnings 7,068,631 6,987,575
----------- -----------
Total stockholders' equity 13,059,114 12,978,058
----------- -----------
Total liabilities and stockholders' equity $18,836,149 $16,961,105
----------- -----------
</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 OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
February 28 February 29, February 28, February 29,
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 8,766,322 $13,445,934 $ 17,571,892 $ 25,325,138
Cost of sales 7,764,858 10,673,446 15,327,695 20,211,617
------------ ----------- ------------ ------------
Gross profit 1,001,464 2,772,488 2,244,197 5,113,521
Other costs and expenses:
Selling, general, and administrative 1,017,237 1,145,081 2,105,635 2,255,141
Interest expense 47,224 72,093 99,002 261,570
Other (income) expense, net (68,401) 6,215 (90,484) 36,036
------------ ----------- ------------ ------------
Total other costs and expenses 996,060 1,223,389 2,114,153 2,552,747
Income before income tax expense and 5,404 1,549,099 130,044 2,560,774
extraordinary gain
Income tax expense:
Current (7,531) 530,060 35,169 899,344
Deferred 11,248 (5,706) 13,819 15,880
------------ ----------- ------------ ------------
Income before extraordinary gain 1,687 1,024,745 81,056 1,645,550
Extraordinary gain from debt reduction and
restructuring due to bankruptcy, net of tax
effect of $83,808 and $159,377 respectively -- 162,049 -- 294,430
------------ ----------- ------------ ------------
Net income $ 1,687 $1 ,186,794 $ 81,056 $ 1,939,980
Income per share (primary and fully diluted):
Income before extraordinary gain $ -- $ 0.20 $ 0.02 $ 0.33
Extraordinary gain -- 0.03 -- 0.06
------------ ----------- ------------ ------------
Net income per common share $ -- $ 0.23 $ 0.02 $ 0.39
------------ ----------- ------------ ------------
Weighted average shares outstanding 5,247,730 5,247,730 5,247,730 4,933,006
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 6
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
February 28, February 29,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 81,056 $ 1,939,980
Adjustments to reconcile net income to net cash
flow provided by operating activities-
Extraordinary gain -- (453,807)
Depreciation and amortization 211,873 174,669
Deferred income taxes 13,819 15,880
(Increase) in accounts receivable, net (184,698) (997,813)
(Increase) decrease in inventory (1,939,784) 447,020
(Increase) decrease in prepaid expenses and other 9,706 (39,631)
Increase in accounts payable 614,485 719,150
Increase (decrease) in accrued liabilities (38,647) 24,728
Increase (decrease) in accrued bonuses (175,000) (540,539)
Increase (decrease) in accrued income taxes (55,556) 265,351
----------- -----------
Net cash provided by (used in) operating activities (1,462,746) 1,554,988
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (401,436) (571,181)
Sale of investments 250,000 --
Change in other non current assets, net 469,294 325,908
----------- -----------
Net cash provided by (used in) investing activities 317,858 (245,273)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowing (payments) on line of credit 1,506,024 (3,843,083)
Payments on prepetition debt (36,270) (2,631,311)
Payments on postpetition debt, net (34,867) (41,307)
Sale of Common Stock and warrants -- 5,977,476
----------- -----------
Net cash provided by (used in) financing activities 1,434,887 (538,225)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS: 289,999 771,490
Cash and cash equivalents, beginning of period 2,368,395 92,081
----------- -----------
Cash and cash equivalents, end of period $ 2,658,394 $ 863,571
----------- -----------
</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").
In April 1993, the Company emerged from a Chapter 11 bankruptcy
proceeding instituted by it in November 1992. The filing was primarily
due to the Company's inability to renegotiate its line of credit
agreement with its primary lender regarding amounts owed to the lender
under the Company's guarantee of indebtedness for a subsidiary
operating as a business consumable wholesaler in which the Company had
a majority interest. The subsidiary was simultaneously liquidated in a
Chapter 7 bankruptcy.
2. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the Interim Unaudited Consolidated
Financial Statements of the Company include all adjustments,
consisting of any normal recurring adjustments, necessary for a fair
presentation of the Company's financial position as of February 28,
1997, and its results of operations for the six months ended February
28, 1997, and February 29, 1996. Results of the Company's operations
for the interim period ended February 28, 1997, may not be indicative
of results for the full fiscal year. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations promulgated
by the Securities and Exchange Commission (the "SEC").
The Interim Unaudited Consolidated Financial Statements should be read
in conjunction with the Audited Consolidated Financial Statements and
accompanying notes of the Company and its subsidiaries, included in
the Company's Form 10-K (the "Company's Form 10-K") for the fiscal
year ended August 31, 1996, File Number 0-26774. Accounting policies
used in the preparation of the Interim Unaudited Consolidated
Financial Statements are consistent in all material respects with the
accounting policies described in the Notes to Consolidated Financial
Statements in the Company's Form 10-K.
3. NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation, " which
requires entities to measure compensation costs related to awards of
stock-based compensation using either the fair value method or the
intrinsic method value method. Under the fair value method,
compensation expense is measured at the grant date based on the fair
value of the award. Under the intrinsic value method, compensation is
equal to the excess, if any, of the quoted market price of the stock
at the grant date over the amount the employee must pay to acquire the
stock. Entities electing to measure compensation costs using the
intrinsic value method must make pro forma disclosures for fiscal
years beginning after December 15, 1995, of net income and earnings
per share as if the fair value method had been applied. The Company
has elected to account for stock-based compensation programs using the
intrinsic value
6
<PAGE> 8
method consistent with existing accounting policies and, therefore,
the standard will have no effect on the consolidated financial
statements. The required pro forma disclosures will be adopted by the
Company for the Company's fiscal year ending August 31, 1997.
4. UTILIZATION OF IPO PROCEEDS
In fiscal year ended August 31, 1996, the Company recorded net
proceeds of $5.9 million on the sale of 1,247,730 shares of Common
Stock in the Company's Initial Public Offering ("IPO"). The Company
utilized $4.9 million to repay indebtedness. In the three months ended
February 29, 1996, part of the proceeds were applied to a secured
prepetition note, prepaid at a discounted amount, resulting in an
extraordinary gain, and the Company applied 65% of the proceeds to
reduce the Company's utilization of its revolving line of credit.
The remaining proceeds were used for working capital purposes.
5. EXTRAORDINARY ITEM
In the 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 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.
6. INVENTORIES
Inventories are stated at the lower of cost (principally on a
first-in, first-out basis) or market and include material, labor, and
factory overhead.
Inventory consisted of the following:
<TABLE>
<CAPTION>
February 28, August 31,
----------- ----------
1997 1996
----------- ----------
<S> <C> <C>
Finished goods $3,788,807 $3,642,869
Raw materials 4,018,307 2,296,347
Supplies 426,418 351,909
Work-in-process 49,983 52,606
---------- ----------
Total inventories $8,283,515 $6,343,731
---------- ----------
</TABLE>
7. DEBT
Debt as of February 28, 1997, and August 31, 1996, is as follows:
<TABLE>
<CAPTION>
February 28, August 31,
1997 1996
----------- ----------
Postpetition-
<S> <C> <C>
Note payable to a commercial financial
corporation under revolving credit line
maturing May 1998, secured by inventory,
trade accounts receivable, equipment,
and a personal guarantee by the trustee of a
trust which is the majority shareholder,
interest payable monthly at prime plus 1.00%
(9.25% at February 28,1997, and
August 31, 1996) $1,644,415 $ 138,391
</TABLE>
7
<PAGE> 9
<TABLE>
<S> <C> <C>
Note payable to a commercial financial corporation,
payable in monthly installments, security, interest,
and maturity date, same as above -- 40,078
Prepetition-
Prepetition taxes payable 77,165 77,165
Note payable to a bank, secured by property, payable
in monthly installments of $4,815 (including
interest at 6%) through May 2000, at which time
the remaining balance becomes due and payable 601,265 611,926
Other notes payable, approximately $450,000, are
secured by a personal guarantee by the trustee of
a trust which is the majority shareholder, and
certain property, plant, and equipment, with various
maturity dates through 2023, and interest rates
ranging from 4% to 10.5% 479,688 500,086
---------- ----------
Total 2,802,533 1,367,646
Less-Current maturities 1,745,067 275,857
---------- ----------
$1,057,466 $1,091,789
---------- ----------
</TABLE>
Prepetition amounts listed above represent the renegotiated amounts
and terms under the plan of reorganization. The postpetition line of
revolving credit is shown above as a current maturity.
8. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
February 28, February 29,
---------------------------
1997 1996
<S> <C> <C>
Cash paid during the period for:
Interest $ 99,002 $261,570
Income taxes -- 710,364
</TABLE>
9. STOCK OPTIONS AND WARRANTS
During the quarter ended November 30, 1995, the Company granted
293,800 options to certain employees, an outside Director, and a
consultant under its 1995 Stock Option Plan (the "Plan"). These
options were granted at an exercise price of $6.00 per share, the fair
market value at the date of grant. These options will become
exercisable at various dates beginning in April 1996, through April
1999. Thirty-six hundred of those options were forfeited during the
1996 fiscal year, 1,350 of those options were forfeited during the
quarter ended November 30,1996, and 450 of those options were
forfeited during the quarter ended February 28,1997.
On January 2, 1996, the Company elected two new outside Directors to
its Board of Directors. In accordance with the Plan, each Director
received an automatic grant of an option for 1,000 shares of Common
Stock. These options were granted at the fair market value at the date
of grant with an exercise price of $6.75 per share and are exercisable
in two equal annual installments.
8
<PAGE> 10
On October 1, 1996, an officer of the Company was granted an option
for 15,000 shares of Common Stock. These options were granted at the
fair market value at the date of grant with an exercise price of
$5.375 per share and are exercisable in accordance with the Plan
beginning on April 1, 1997.
On January 29, 1997, the three outside Directors received their
automatic grants of an option for 1,000 shares of Common stock . These
options were granted at fair market value at the date of grant with an
exercise price of $8.375 per share and are exercisable in accordance
with the Plan beginning on January 29, 1998.
As of February 28,1997, 73,350 of the options granted under the Plan
are exercisable. The shares issuable on exercise of these options are
restricted from public sale until April 5,1997, by the Underwriters'
Agreement. Remaining options available for grant under the Plan,
including all forfeited options, total 91,600.
In addition to options under the Plan, in October 1995, in connection
with the Company's initial public offering ("IPO"), the Company
granted an option to purchase up to 147,730 shares of Common Stock
(over-allotment option) to its Underwriters at $6.00 per share. The
option was exercised in full on November 14, 1995.
Also in connection with the Company's IPO, the Company issued warrants
to its Underwriters for $.001 per warrant to purchase an aggregate of
110,000 shares of Common Stock. The warrants became exercisable on
October 5, 1996, for four years at an exercise price of $7.20 per
share.
Subsequent to the IPO, the Company issued warrants to two consultants.
One warrant for 10,000 shares of Common Stock was granted at an
exercise price of $7.20 per share, which was above fair market value
on the date of grant, and is exercisable for a period of five years
from December 1, 1995 . The other warrant, also for 10,000 shares of
Common Stock, was granted at an exercise price of $6.60 per share,
which was above fair market value on the date of grant, and became
exercisable October 5, 1996, for a period of four years.
On April 7, 1997, the Company filed a Registration Statement on Form
S-8 with the Securities and Exchange Commission to register the
400,000 shares of Common Stock issuable on exercise of options granted
under the Company's 1995 Stock Option Plan.
10. EMPLOYEE 401(K) PLAN
In February 1996, the Company implemented an employee 401(k) plan. The
Plan is administered by a national brokerage firm and administrative
fees associated with the plan are funded by the plan. The Company is
matching 5% of up to 10% of the participating employees' deductible
contribution to their 401(K) accounts. Contributions by the Company
were $3,500 and $9,500 for the six months ended February 28, 1997, and
the year ended August 31, 1996, respectively.
11. EARNINGS PER COMMON SHARE
Earnings per share is based on the weighted average number of common
shares outstanding. Common share equivalents have not been included in
the computation of earnings per share as the dilution of these
equivalents is not considered material.
9
<PAGE> 11
12. SUPPLEMENTAL EARNINGS PER SHARE DATA
In October 1995, the Company's registration statement on Form S-1
filed with the SEC was declared effective for the sale of 1,247,730
shares (including over-allotment option shares) at $6.00 per share.
The unaudited supplemental earnings per share data has been calculated
assuming the IPO occurred as of the beginning of each respective
period.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
February 28, 1997 February 29, 1996
----------------- -----------------
<S> <C> <C>
Supplemental income per share
(primary and fully diluted):
Income before extraordinary gain $ 0.02 $ 0.31
Extraordinary gain -- 0.06
------ ------
Net income per common share $ 0.02 $ 0.37
------ ------
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 February 28,1997 and
February 29,1996
Net Sales---Net sales for the three months ended February 28, 1997,
decreased $4.7 million, or 34.8%, as compared to the corresponding
period of the prior year. Net sales for the six months ended February
28, 1997, decreased $7.8 million, or 30.6% as compared to the
corresponding period of the prior year. These decreases were due to
decreases in the selling prices of the Company's products combined
with depressed market conditions resulting in reduced sales volume,
and a reduction in sales volume to a significant customer of the
Company. This customer's gross purchases for the three months ended
February 28, 1997, was 11.4% of the Company's gross sales as compared
to 26.5% of the corresponding period of the prior year, and for the six
months ended February 28, 1997, was 9.6%, as compared to 23.7% of the
corresponding period of the prior year. Beginning in fiscal 1997, to
avoid dependency on the Company as its sole source of supply for the
products the Company produces, the significant customer began
purchasing products from another vendor. No other single existing or
new customer represented a significant portion of the Company's
revenues during this time.
Gross Profit---Gross profit for the three months ended February 28,
1997, decreased $1.8 million, or 63.9%, as compared to the
corresponding period of the prior year. The decreased gross profit was
primarily the result of decreases in the selling prices of the
Company's products without a corresponding decrease in raw material
costs. Gross profit for the six months ended February 28, 1997,
decreased $2.9 million, or 56.1%, as compared to the corresponding
period of the prior year due to the inability of the Company to pass
onto the Company's customers increased material costs resulting from
fluctuations in the raw material market. As a result of decreased
gross profit and net sales, the Company's gross profit margin
decreased to 11.4% for the three month period ended February 28, 1997,
as compared to 20.6% of the corresponding period of the prior year,
and to 12.8% for the six months ended February 28, 1997, as compared
to 20.2% of the corresponding period of the prior year.
In the second quarter of 1997, the Company acquired a second sheeter.
This sheeter can produce high volume commodity sheets, and can also
manufacture certain types of value-added cut sheet. Value-added cut
sheets include, but are not limited to, printed, perforated, or
punched cut sheets; specially coated papers; and custom sizes and
packages. A third sheeter was installed on January 7, 1997. The
Company is slowly introducing value-added products into the market
place. The Company previously purchased its cut sheet products
directly from the paper mills. The addition of sheeting equipment is
projected to expand the Company's profit margin on the sale of all
types of cut sheets. Management is aggressively pursuing the cut sheet
market for future revenue growth.
10
<PAGE> 12
Selling, General, and Administrative Expenses---SG&A expenses for the
three months ended February 28, 1997, were $1.0 million, or 11.6% of
net sales, as compared to $1.1 million, or 8.5% of net sales, for the
corresponding period of the prior year. SG&A Expenses for the six
months ended February 28, 1997, were $2.1 million, or 12% of net
sales, as compared to $2.3 million, or 8.9% for the corresponding
period of the prior year. SG&A expenses, although slightly reduced in
the 1997 periods, remained approximately constant in dollars, but
increased as a percentage of net sales during these periods because of
the decreased net sales and the effects of fixed expenses.
Interest Expense---Interest expense for the three months ended
February 28, 1997, was $ 47,000 as compared to $72,000 for the
corresponding period of the prior year. Interest expense for the six
months ended February 28, 1997, was $99,000 as compared to $262,000
for the corresponding period of the prior year. The decrease in
interest expense for the three and six month periods ended February
28, 1997, as compared to the corresponding periods of the prior year
were primarily attributable to a lower interest rate on, and the
pay-down of, the Company's revolving line of credit and the early
extinguishment of a prepetition note payable .
Income before taxes and extraordinary gain---Income before taxes and
extraordinary gain for the three months ended February 28, 1997, was
$5,000 as compared to $1.5 million for the corresponding period of the
prior year, a decrease of $1.5 million or 99.7%. Income before taxes
and extraordinary gain for the six months ended February 28, 1997, was
$130,000 as compared to $2.6 million for the corresponding period of
the prior year, a decrease of $2.4 million, or 94.9%. These decreases
were primarily due to a lower sales volume, decreases in the selling
prices of the Company's products without a corresponding reduction in
raw material costs, and depressed market conditions.
Extraordinary Gain---The Company did not record an extraordinary gain
for the six months ended February 28, 1997, as compared to an
extraordinary gain totalling $295,000, net of related income tax
expense of $159,000, for the corresponding period of the prior year.
The prior year gain result from the Company's early extinguishment of
a prepetition note payable for a discounted amount.
Income Taxes---The Company's provision for income taxes was $1,000 for
the three months ended February 28, 1997, as compared to $1.0 million
for the corresponding period of the prior year. The Company's
provision for income taxes was $81,000 for the six months ended
February 28, 1997, as compared to $1.6 million for the corresponding
period of the prior year. These decreases were primarily due to
decreased sales volume and decreased net profit . The effective tax
rate for the six month period ended February 28, 1997, was 37.7% as
compared to 35.7% for the corresponding period of the prior year.
Liquidity and Capital Resources
Net cash used in operating activities was $1.4 million for the six
months ended February 28, 1997, as compared with $1.6 million provided
by operating activities for the corresponding period of the prior
year. The decrease in the Company's net cash provided by operations
for the six months ended February 28, 1997, primarily related to
decreases in net income and increases in raw material inventory. The
Company's inventories during the six months ended February 28, 1997,
have increased approximately 31% from the fiscal year ended August 31,
1996. A majority of the increase in inventory was raw material
purchased for conversion to cut sheets on the Company's sheeters.
During the second quarter of fiscal 1997, the sheeters reached full
operating capacity. Gross sales of cut sheets for the six month period
ended February 28, 1997, increased 37%, as compared to the
corresponding period of the prior year.
Net cash provided by investing activities was $318,000 for the six
months ended February 28, 1997, as compared with $245,000 used in
investing activities for the corresponding period of the prior year.
The increase in the Company's net cash provided by investing
activities primarily related to converting an investment security to a
cash equivalent.
11
<PAGE> 13
Net cash provided by financing activities was $1.4 million for the six
months ended February 28, 1997, as compared with $538,000 used in
financing activities for the corresponding period of the prior year.
The increase in cash provided by financing activities primarily
related to an increase in the Company's borrowings under its revolving
line of credit to $1.6 million at February 28, 1997, from $138,000 at
August 31, 1996. The Company utilized its revolving line of credit to
meet capital expenditures due to the decrease in funds available from
net profits.
Working capital increased to $10.2 million at February 28, 1997, from
$9.8 million at August 31, 1996, an increase of 3.5%, primarily
attributable to an increase in inventories.
In the fiscal year ended August 31, 1996, the Company recorded net
proceeds of $5.9 million on the sale of 1,247,730 shares of Common
Stock in the Company's Initial Public Offering ("IPO"). The Company
utilized $4.9 million to repay indebtedness. In the three months ended
February 29, 1996, part of the proceeds were applied to a secured
prepetition note, prepaid at a discounted amount, resulting in an
extraordinary gain, and the Company applied 65% of the proceeds to
reduce the Company's utilization of it's revolving line of credit. The
availability of the revolving credit line was $4,862,000 and
$1,157,000 as of August 31, 1996, and August 1995, respectively. The
balance of the proceeds were used to increase the Company's working
capital.
In May 1996, the Company entered into an agreement with a bank for a
one year, secured, revolving line of credit, which is secured by,
among other things, inventory, trade receivables, equipment and a
personal guarantee of Mr. Sorokwasz, Chairman of the Board, President
of the Company, and Trustee of the trust which is the majority
shareholder of the Company. Available borrowings under this line of
credit, which accrues interest at the prime rate of interest plus 1%
(9.25% at February 28, 1997), are based upon specified percentages of
eligible accounts receivable and inventories. As of February 28, 1997,
there was a $3.4 million borrowing capacity remaining under the $5
million revolving line of credit. The revolving credit line which
matures in May 1997, has been automatically renewed under identical
terms until May 1998.
The Company is in final contract negotiations with a national
manufacturer of computer hardware to manufacture, market, and
distribute products with the national manufacturer's trademark.
However, there is no assurance that a final agreement will be arrived
at or that the agreement will be signed. If a definitive agreement is
signed, the Company expects that it will result in a substantial
increase in Company sales, but there can be no assurance that such
sales will be profitable.
The Company believes that the funds available under the revolving
credit line facility, trade credit, and internally generated funds
will be sufficient to satisfy the Company's requirements for working
capital and capital expenditures for at least the next twelve months.
Such belief is based on certain assumptions, including the
continuation of current operations of the Company and no extraordinary
adverse events, and there can be no assurance that such assumptions
are correct. In addition, contingencies or expansion based upon the
completion of contract negotiations between the Company and the
national manufacturer of computer hardware may arise which may require
the Company to obtain additional capital. In fiscal 1998, the Company
may pursue an acquisition, or the addition of new manufacturing
facilities. If that should occur, the funds required for the potential
acquisition or new facilities would be generated through additional
security offerings or additional debt. There can be no assurance that
any additional financing will be available if needed, or, if
available, will be on terms acceptable to the Company.
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 minimum of $6.0
million in inventory. With the expansion of the Company's capacity to
produce cut sheet products, the Company has increased its inventory.
In accordance with the Company's strategic raw material purchasing
policies and in
12
<PAGE> 14
order to obtain preferential pricing, the Company waives the rights to
supplier's 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.
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 not had a significant impact
on the Company's operations. Historically, the Company has been
successful in transferring to its customers increases in its
manufacturing and other costs resulting from inflation by means of
price increases.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and the
Results of Operations, and other sections of this Form 10-Q contain
"forward-looking statements" about the Company's prospects for the
future, such as its ability to generate sufficient working capital,
its ability to continue to maintain sales to justify capital expenses,
its ability to generate additional sales to meet business expansion,
and potential sales to a large potential customer. Such statements are
subject to certain risks and uncertainties which could cause actual
results to differ materially from those projected, including
availability of raw materials, availability of thermal facsimile,
computer, laser and color ink jet paper, to the cyclical nature of the
industry in which the Company operates, the potential of technological
changes which would adversely affect the need for the Company's
products, price fluctuations which could adversely impact the large
inventory required in the Company's business, the ability of the large
potential customer to change its plans and decline to execute the
contract, and the potential that such contract may not prove
profitable. Parties are cautioned not to rely on any such
forward-looking beliefs or judgments in making investment decisions.
13
<PAGE> 15
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) NUMBER EXHIBIT
3(a) Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1 No. 33-93814)
3(b) By-laws of the Company (incorporated by reference
to Exhibit 3.2 to Registration Statement on Form
S-1 No. 33-93814)
4 Form of Underwriters' Warrant (incorporated by
reference to Exhibit 4.1 to Registration Statement
on Form S-1 No. 33-93814)
10(a) 1995 Stock Option Plan (incorporated by reference
to Exhibit 10.1 to Registration Statement on Form
S-1 No. 33-93814)
10(b) Employment Agreement dated September 28,1995,
between the Company and Marshall Sorokwasz
(incorporated by reference to Exhibit 10.2 to
Registration Statement on Form S-1 No. 33-93814)
21 Subsidiaries of the Registrant (incorporated by
reference to Exhibit 21.1 to Registration Statement
on Form S-1 No. 33-93814)
27 Financial data schedule
b) No reports on Form 8-K were filed during the quarter ended
February 28, 1997.
14
<PAGE> 16
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: April 14, 1997
TST/ Impreso, Inc.
(Registrant)
/s/ Marshall Sorokwasz
------------------------------
Marshall Sorokwasz
Chairman of the Board
President, Chief Executive Officer,
and Director
/s/ Susan Atkins
------------------------------
Susan Atkins
Vice President and Chief
Financial Officer
15
<PAGE> 17
EXHIBIT
NUMBER ITEM
------- ----
3(a) Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1 No. 33-93814)
3(b) By-laws of the Company (incorporated by reference
to Exhibit 3.2 to Registration Statement on Form
S-1 No. 33-93814)
4 Form of Underwriters' Warrant (incorporated by
reference to Exhibit 4.1 to Registration Statement
on Form S-1 No. 33-93814)
10(a) 1995 Stock Option Plan (incorporated by reference
to Exhibit 10.1 to Registration Statement on Form
S-1 No. 33-93814)
10(b) Employment Agreement dated September 28,1995,
between the Company and Marshall Sorokwasz
(incorporated by reference to Exhibit 10.2 to
Registration Statement on Form S-1 No. 33-93814)
21 Subsidiaries of the Registrant (incorporated by
reference to Exhibit 21.1 to Registration Statement
on Form S-1 No. 33-93814)
27 Financial data schedule
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<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> FEB-28-1997
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<CURRENT-ASSETS> 14,309,043
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