<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, 1998
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.
Class of Common Stock Shares outstanding at July 13, 1998
--------------------- -----------------------------------
$ .01 Par Value 5,292,780
<PAGE> 2
TST/IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
MAY 31, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of May 31,
1998 (Unaudited), and August 31, 1997 1
Interim Consolidated Statements of Operations for the
Nine Months Ended May 31, 1998, and 1997 (Unaudited) 3
Interim Consolidated Statements of Cash Flows for the
Nine Months Ended May 31, 1998, and 1997 (Unaudited) 4
Notes to Interim Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
<PAGE> 3
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
May 31, August 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 92,514 $ 1,766,274
Trade accounts receivable, net of allowance for doubtful
accounts of $130,000 at May 31, 1998 and
August 31, 1997 6,205,096 2,120,168
Investments in marketable securities 11,088 978,463
Inventories 10,463,376 7,889,949
Prepaid expenses and other 521,582 516,971
Deferred income tax assets 549,043 364,402
------------ ------------
Total current assets 17,842,699 13,636,227
------------ ------------
Property, plant and equipment, at cost 13,819,794 12,923,242
Less-Accumulated depreciation (8,998,142) (8,765,160)
------------ ------------
Net property, plant and equipment 4,821,652 4,158,082
------------ ------------
Other assets:
Deposits and other 95,993 426,637
Investments 4,954 4,954
------------
Total assets $ 22,765,298 $ 18,225,900
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
1
<PAGE> 4
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS- (CONTINUED)
LIABILITIES AND STOCKHOLDER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
May 31. August 31,
1998 1997
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 3,384,486 $ 434,331
Accrued liabilities 835,229 249,918
Accrued income taxes 10,000 69,387
Current maturities of long-term debt 17,424 5,383
Line of credit 4,874,931 2,836,184
Prepetition liabilities:
Current maturities of prepetition taxes payable 25,722 25,722
Current maturities of long-term debt 69,469 72,187
------------ ------------
Total current liabilities 9,217,261 3,693,112
------------ ------------
Deferred income tax liability 677,300 642,320
Long-term portion of prepetition debt, net of current maturities 914,197 991,221
Long-term debt, net of current maturities 65,246 15,817
------------ ------------
Total liabilities 10,874,004 5,342,470
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized;
0 shares issued and outstanding at May 31, 1998 and
August 31, 1997 -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
5,292,780 shares issued and outstanding at May 31, 1998
and August 31, 1997 52,928 52,928
Warrants 110 110
Additional paid-in-capital 6,319,572 6,319,572
Retained earnings 5,518,684 6,510,820
------------ ------------
Total stockholders' equity 11,891,294 12,883,430
------------ ------------
Total liabilities and stockholder's equity $ 22,765,298 $ 18,225,900
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
<PAGE> 5
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net Sales $ 17,274,209 $ 8,898,308 $ 34,550,589 $ 26,470,200
Cost of sales 15,682,893 8,134,777 31,155,106 23,462,472
------------ ------------ ------------ ------------
Gross profit 1,591,316 763,531 3,395,483 3,007,728
Other costs and expenses:
Selling, general and administrative 1,604,379 1,019,770 4,213,326 3,125,405
Interest expense 158,453 87,493 362,191 186,495
Other expense (income), net 22,083 (89,693) (23,004) (180,177)
------------ ------------ ------------ ------------
Total other costs and expenses 1,784,915 1,017,570 4,552,513 3,131,723
Loss before income tax benefit (193,599) (254,039) (1,157,030) (123,995)
Income tax expense (benefit):
Current (33,816) 105,456 (15,233) 140,625
Deferred (37,683) (16,024) (149,661) (2,205)
------------ ------------ ------------ ------------
Net loss (122,100) (343,471) (992,136) (262,415)
============ ============ ============ ============
Net loss per common share
(basic and diluted) $ (0.02) $ (0.07) $ (0.19) $ (0.05)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 6
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
May 31, May 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (992,136) $ (262,415)
Adjustments to reconcile net loss to net cash flow used in
operating activities-
Depreciation and amortization 232,982 311,115
Decrease in deferred income taxes (149,661) (2,205)
Increase in accounts receivable, net (4,084,928) (503,734)
Increase in inventory (2,573,427) (28,154)
Increase in prepaid expenses and other (4,611) (377,348)
Increase (decrease) in accounts payable 2,950,155 (793,828)
Increase (decrease) in accrued liabilities 585,311 (20,347)
Decrease in accrued bonuses -- (175,000)
Decrease in accrued income tax (59,387) (29,235)
Decrease in investments 967,375 250,000
------------ ------------
Net cash used in operating activities (3,128,327) (1,631,151)
------------ ------------
Cash Flows From Investing Activities:
Additions to property, plant, and equipment (896,552) (417,890)
Change in other non current assets, net 330,644 672,899
------------ ------------
Net cash (used in) provided by investing activities (565,908) 255,009
------------ ------------
Cash Flows From Financing Activities:
Net borrowing on line of credit 2,038,747 1,774,314
Payments on prepetition debt (79,742) (81,126)
Net borrowing (payments) on postpetition debt 61,470 (35,807)
Sale of common stock and warrants -- 81,975
------------ ------------
Net cash provided by financing activities 2,020,475 1,739,356
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,673,760) 363,214
Cash and cash equivalents, beginning of period 1,766,274 2,368,395
------------ ------------
Cash and cash equivalents, end of period $ 92,514 $ 2,731,609
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<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 hard copy imaging
products for commercial and home use in domestic and international
markets. The Company's product line consists of standard continuous
computer stock business forms, thermal facsimile paper, cut sheet
products such as copy paper, ink jet paper, digital photo paper, and
transparencies. 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
only of normal recurring adjustments, necessary for a fair presentation
of the Company's financial position as of May 31, 1998, and its results
of operations for the three and nine months ended May 31, 1998 and
1997. Results of the Company's operations for the interim period ended
May 31, 1998, 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, 1997 ("Fiscal 1997"), 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. 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.
5
<PAGE> 8
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
Inventory consisted of the following:
<TABLE>
<CAPTION>
May 31, August 31,
1998 1997
----------- -----------
<S> <C> <C>
Finished goods $ 4,979,080 $ 3,915,325
Raw materials 4,889,714 3,493,589
Supplies 566,200 455,738
Work-in-process 28,382 25,297
----------- -----------
Total inventories $10,463,376 $ 7,889,949
=========== ===========
</TABLE>
4. DEBT
Debt as of May 31, 1998, and August 31, 1997, was as follows:
<TABLE>
<CAPTION>
May 31, August 31,
1998 1997
---------- ----------
<S> <C> <C>
Note payable to a commercial financial corporation
under revolving credit line maturing May 1999,
secured by inventory, trade accounts receivable,
equipment, goodwill associated with the Company's
trademark Impreso (no value on financial statements),
and a personal guarantee by the trustee of a trust
which is a principal shareholder, interest payable
monthly at prime plus 3/4% (9.25% at May 31, 1998,
and 9.50% at August 31, 1997) $4,874,931 $2,836,184
Note payable to a commercial financial corporation,
secured, payable in monthly installments, interest
rate at 1.30% 17,173 21,200
Financing lease payable to a commercial financial
corporation, payable in monthly installments, lease
factor at 7.25% 65,497 --
</TABLE>
6
<PAGE> 9
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
<TABLE>
<S> <C> <C>
Prepetition-
Prepetition taxes payable 25,722 51,444
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 576,140 590,011
Other notes payable, secured by a personal
guarantee by the trustee of a trust which is a
principal shareholder, and certain property, plant,
equipment, maturity dates ranging from 1998 to
2023, and interest rates ranging from 4% to 10.5% 407,526 447,675
----------- -----------
Total 5,966,989 3,946,514
Less-Current maturities (4,987,546) (2,939,476)
----------- -----------
Long term debt $ 979,443 $ 1,007,038
=========== ===========
</TABLE>
In March 1998, the Company negotiated an increase in its revolving credit
facility from $5 million to $12 million with its current lender. The facility,
which had an initial maturity in May 1998, was renewed and will now expire in
May 1999. The renewed loan has more favorable terms including a reduced interest
rate at prime plus 3/4%.
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
May 28,
------------------------
1998 1997
<S> <C> <C>
Cash paid during the period for:
Interest $ 362,191 $ 186,495
Income taxes $ 43,555 $ 100,625
</TABLE>
6. EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (SFAS
7
<PAGE> 10
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
No. 128) in Fiscal 1998. SFAS No. 128 requires the replacement of primary and
fully diluted earnings per share ("EPS") with basic and diluted earnings per
share. The adoption of SFAS No. 128 did not have a material impact on the
earnings per share calculation.
Basic EPS is calculated by dividing net income (loss) attributable to common
stockholders by the weighted average shares of common stock of the Company
("Common Stock"). The calculation of diluted EPS considers the effect of Common
Stock equivalents outstanding during the period. Common Stock equivalents
represent the dilutive effect of the assumed exercise of certain outstanding
stock options and warrants. For the three and nine months periods ended May 31,
1998, the assumed exercise of outstanding in-the money stock options and
conversion of warrants had an anti-dilutive effect. As a result, these shares
are excluded from the final determination of the weighted average shares
outstanding at May 31, 1998.
<TABLE>
<CAPTION>
For the three months ended 5/31/98 For the nine months ended 5/31/98
---------------------------------- ---------------------------------
Per-Share Per-Share
Loss Shares Amount Loss Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
- ------------------------------------
Net loss attributable to $(122,100) 5,292,780 $(0.02) $(992,136) 5,292,780 $(0.19)
common shareholders
</TABLE>
<TABLE>
<CAPTION>
For the three months ended 5/31/97 For the nine months ended 5/31/97
---------------------------------- ---------------------------------
Per-Share Per-Share
Loss Shares Amount Loss Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
- ------------------------------------
Net loss attributable to common $(343,471) 5,249,588 $(0.07) $(262,415) 5,248,356 $(0.05)
shareholders
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HISTORICAL
From 1978 to 1991, the Company owned a majority interest in Origami, Inc.
("Origami"), a wholesaler of business consumables. In 1989, the Company and
Origami executed a loan agreement with a secured lender which was
cross-collateralized by the assets of both the Company and Origami as security
for revolving loans to each. Origami filed for protection under Chapter 11 of
the United Sates Bankruptcy Code (the "Bankruptcy Code") in June 1991. Such
Chapter 11 proceeding was converted to a liquidation under Chapter
8
<PAGE> 11
7 of the Bankruptcy Code in August 1991. The liquidation of Origami resulted in
a $3 million shortfall to the Company's lender and an uncollected $5.5 million
receivable from Origami to the Company. The deficiency on the Origami portion of
the loans was added to the Company's borrowing base with such lender, and the
resulting losses on a combined basis far outweighed the borrowing base which the
Company's collateral could support. On November 10, 1992, the Company filed for
protection under Chapter 11 of the Bankruptcy Code, primarily as a result of the
Company's inability to renegotiate its line of credit agreement with its lender
and to settle disputes regarding amounts owed to the lender under the Company's
guarantee of the indebtedness of Origami to the lender. In April 1993, the
Company's Amended Joint Plan of Reorganization (the "Plan of Reorganization")
was confirmed by the United States Bankruptcy Court. The Company has completed
payment of substantially all of its prepetition obligations under the Plan of
Reorganization. The Company has been operating in conformity with and meeting
the remaining payment terms of the Plan of Reorganization.
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED MAY 31, 1998 AND
MAY 31, 1997
Net Sales---Net sales for the three months ended May 31, 1998, ("Third Quarter")
increased $8.4 million, or 94%, as compared to the corresponding period of the
prior year. Net sales for the nine months ended May 31, 1998, increased $8.1
million, or 31%, as compared to the corresponding period of the prior year. The
increase in net sales for the Third Quarter was primarily due to large purchases
by a major office superstore chain for a private label paper program initiated
in the last month of the three months ended February 28, 1998 ("Second
Quarter"), which continued into the Third Quarter. This one customer represented
a significant portion of the Company's revenues during this time. There can be
no assurance, however, that this increase in sales will continue, or if
continued such sales will have a significant impact on the Company's
profitability. The increase in net sales for the nine months ended May 31, 1998,
was primarily attributable to the significant increase of sales in the Third
Quarter, which affected the total sales for the entire nine month period when
compared to the corresponding period of the prior year.
Gross Profit---Gross profit for the three months ended May 31, 1998, increased
$828,000 , or 108%, to $1.6 million, as compared to $764,000 for the
corresponding period of the prior year. The increased gross profit for the Third
Quarter was primarily the result of increased sales. Cost of sales as a
percentage of sales slightly decreased for the three months ended May 31, 1997,
to 90.8%, as compared to 91.4% of the corresponding period of the prior year.
Gross profit for the nine months ended May 31, 1998, increased $388,000, or 13%,
to $3.4 million, as compared to $3.0 million for the corresponding period of the
prior year. The increased gross profit for the nine months ended May 31, 1998,
was due to the increased sales of the period. The Company's gross profit margin
increased to 9.2% for the three month period ended May 31, 1998, as compared to
8.6% of the corresponding period of the prior year due to increased sales in
relation to fixed operating expenses. Although gross profit and net sales
increased, the Company's gross profit margin decreased to 9.8% for the nine
months ended May 31, 1998, as compared to 11.4% of the corresponding period of
the prior year as a result of sales of lower margin products such as computer
and plain cut sheet paper comprising a significantly larger percentage of net
sales for that period.
Selling, General, and Administrative Expenses---SG&A expenses for the three
months ended May 31, 1998, were $1.6 million, or 9.3% of net sales, as compared
to $1.0 million, or 11.5% of net sales, for the corresponding period of the
prior year. SG&A expenses for the nine months ended May 31, 1998, were $4.2
million, or 12.2% of net sales, as compared to $3.1 million, or 11.8% of net
sales for the corresponding period of the prior year. SG&A expenses for the
three months ended May 31, 1998, decreased as a
9
<PAGE> 12
percentage of net sales during this period primarily due to increased sales
volume. SG&A expenses for the nine months ended May 31, 1998, increased as a
percentage of net sales as compared to the corresponding period of the prior
year as a result of additional expenses, such as promotions, commissions, and
rebates associated with promotional activities such as rebate programs executed
in the Second Quarter of the Company's 1998 Fiscal Year.
Interest Expense---Interest expense for the three months ended May 31, 1998, was
$ 158,000, as compared to $87,000, an increase of 81.1% from the corresponding
period of the prior year. Interest expense for the nine months ended May 31,
1998, was $362,000 as compared to $186,000, an increase of 94.2% from the
corresponding period of the prior year. The increase in interest expense for the
three and nine month periods ended May 31, 1998, as compared to the
corresponding periods of the prior year were primarily attributable to the
Company increasing its outstanding borrowings under its revolving line of
credit. The increased borrowings reflected the Company's increased inventory and
accounts receivable as of May 31, 1998, as compared to August 31, 1997.
Loss before income tax expense (benefit)--- Loss before income tax expense
(benefit) for the three months ended May 31, 1998, was $(194,000), as compared
to $(254,000) for the corresponding period of the prior year, a reduction of
loss of $60,000, or 23.8%. Loss before income tax expense (benefit) for the nine
months ended May 31, 1998, was $(1.2 million), as compared to $(124,000) for the
corresponding period of the prior year, an increase in loss of $1.0 million, or
833%. The reduction of loss for the three months ended May 31, 1998, was
primarily due to increased sales volumes and lower cost of sales, and SGA as a
percentage of net sales. The increased loss for the nine months ended May 31,
1998, was primarily due to decreases in the selling prices of the Company's
products, depressed market conditions, and sales of lower margin products such
as computer and plain cut sheet paper comprising a significantly larger
percentage of net sales for that period.
Income Taxes---The Company recognized an income tax benefit for the three months
ended May 31, 1998, of $71,000, as compared to a $89,000 provision for taxes in
the corresponding period of the prior year. The Company recognized an income tax
benefit of $165,000 for the nine months ended May 31, 1998, as compared to a
$138,000 provision for taxes in the corresponding period of the prior year. The
benefits recorded resulted primarily from losses sustained by the Company for
the three and nine month periods ended May 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $3.1 million for the nine months ended
May 31, 1998, as compared with $1.6 million used in operating activities for the
corresponding period of the prior year. The increase in the Company's net cash
used in operations for the nine months ended May 31, 1998, primarily related to
increases in accounts receivable, increases in inventory and decreases in net
income. Accounts receivable increased $4.1 million, or 193%, to $6.2 million at
May 31, 1998, as compared to $2.1 million at August 31, 1997, primarily due to
large purchases by a major office superstore chain for a private label paper
program initiated in the last month of the Second Quarter, which continued into
the Third Quarter. The Company's inventories during the nine months ended May
31, 1998, have increased approximately 32.6% from the fiscal year ended August
31, 1997. The largest increase of inventory was in raw material. Raw material
represented 46.7% of inventory. A major portion of the increase in raw material
inventory resulted from the purchase of speciality papers for manufacturing of
the new brands and types of products the
10
<PAGE> 13
Company distributes and the delivery of large shipments of raw materials by a
foreign vendor whose shipments are received less frequently and in larger
volumes than domestic suppliers.
Net cash used by investing activities was $566,000 for the nine months ended May
31, 1998, as compared with $255,000 provided by investing activities for the
corresponding period of the prior year. The decrease in the Company's net cash
provided by investing activities primarily related to expenses incurred in the
completion of the Company's speciality sheeting operation, including equipment,
and additions to the Company's central information system.
Net cash provided by financing activities was $2 million for the nine months
ended May 31, 1998, as compared with $1.7 million provided by financing
activities for the corresponding period of the prior year. The increase in cash
provided by financing activities primarily related to increased inventory and
receivables which consequently increased the Company's borrowings under its
revolving line of credit, as compared to the corresponding period of the prior
year.
Working capital decreased to $8.6 million at May 31, 1998, from $9.9 million at
August 31, 1997, a decrease of 13.3%, primarily attributable to an increase in
the Company's accounts payable, borrowings under the revolving line of credit,
and a decrease in cash and cash equivalents.
In May 1998, 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 Marshall
Sorokwasz, Chairman of the Board and President of the Company, and Trustee of
the trust which is a principal shareholder of the Company. Available borrowings
under this line of credit, which accrues interest at the prime rate of interest
plus 3/4% (9.25% at May 31, 1998), are based upon specified percentages of
eligible accounts receivable and inventories. As of May 31, 1998, there was a
$7.1 million borrowing capacity remaining under the $12 million revolving line
of credit. The revolving credit line expires in May 1999.
On March 25, 1998, the Company entered into an agreement for the purchase of its
California facility as well as an adjacent building, which will approximately
double the square footage of the plant. The purchase price of the two buildings
was competitive for that market. The Company has obtained a Commitment Letter
from a lender to finance a major portion of the purchase subject to an appraisal
and the lender's satisfaction of such appraisal. Management anticipates the
purchase of the property will close during the final week of July 1998.
The Company believes that the funds available under the revolving credit line
facility, cash and cash equivalents, trade credit, and internally generated
funds will be sufficient to satisfy the Company's requirements for working
capital and capital expenditures for at least the next twelve months. Such
belief is based on certain assumptions, including the continuation of current
operations of the Company and no extraordinary adverse events, and there can be
no assurance that such assumptions are correct. In addition, contingencies or
expansion opportunities may arise which may require the Company to obtain
additional capital. Accordingly, there can be no assurance that the Company will
generate sufficient revenues to fund its plan for expansion. 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.
11
<PAGE> 14
YEAR 2000
The Company has been evaluating its systems to identify potential Year 2000
problems. In November 1997, the Company purchased new hardware for the main
computer system ("the System") utilized in several key areas of the Company's
business, including purchasing, inventory management, shipping and financial
reporting. The Company's purchase was primarily in a response to the Company's
need for greater security, capacity, and reliability for these functions instead
of Year 2000 considerations. The Company believes that it will be able to
complete Year 2000 compliance of the System through the modification of existing
application software. The modification is scheduled for completion by December
31, 1998. The Company is in the process of completing all necessary updates to
its other equipment to ensure it will be effective in the Year 2000. As other
systems became obsolete, replacements have incorporated Year 2000
considerations. Upgrades not acquired in reaction to Year 2000 considerations,
but purchased in the normal course of business are not included in estimates of
expenditures. The Company is utilizing both internal and external resources to
implement and test the Year 2000 activities to eliminate transition
interruptions or failure; however, there can be no assurance that these efforts
will be successful. The cost of the implementation is approximately $150,000.
The Company does not expect the cost of Year 2000 compliance to be material to
its future financial condition or results of operations. The costs of the Year
2000 compliance and anticipated dates of completion are based on managements
best estimates, including considerations such as vendor support, no
extraordinary adverse events, and application of theoretical and unproven
practices.
The Company does not currently have any information concerning the Year 2000
compliance status of its suppliers and customers. Failure of suppliers and
customers to comply will not have a material impact on the Company or its
operations.
NEW PRODUCTS
In the Third Quarter of 1998, the Company's production capabilities were
enhanced by the start-up of a new specialty sheeting production line at the
Company's Texas plant. The Company will be manufacturing paper and film products
that have delicate surfaces which are extremely sensitive to scratching or
marring and require a specialized environment and equipment for manufacturing.
The special surface sheeted products will be marketed under one or both of the
TST/Impreso, Inc. and International Business Machines Corporation ("IBM")
brands.
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. As a
result of the Company manufacturing and distributing new brands and types of
products, its raw material and finished goods inventory requirements have
increased; therefore the Company has substantially increased its inventory
levels.
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. 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.
12
<PAGE> 15
MARKET CONDITIONS
At the end of the Second Quarter and into the Third Quarter prices for raw
materials declined for a majority of the products manufactured or distributed by
the Company. Management does not believe that product selling prices will remain
constant during the quarter of the three months ending August 31, 1998. If
prices for products manufactured by the Company decline as a result of market
pressures, the Company's results of operations could be materially adversely
affected.
SEASONALITY
The Company may be subject to certain seasonal fluctuations in that orders for
products may decline in summer months. However, the Company does not believe
that such fluctuations have a material adverse effect on its results of
operations or financial condition.
INFLATION
Inflation is not expected to have a significant impact on the Company's
business.
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 obtain financing to acquire
new manufacturing facilities, its ability to continue to maintain sales to
justify capital expenses, its ability to switch its product mix to meet market
conditions, its ability to successfully market its new brands and types of
products, its ability to identify, evaluate and implement corrective action for
potential Year 2000 problems., and its ability to generate additional sales to
meet business expansion and future market conditions. 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, and price fluctuations which could adversely impact the large
inventory required in the Company's business. Parties are cautioned not to rely
on any such forward-looking beliefs or judgments in making investment decisions.
13
<PAGE> 16
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C> <C>
a) 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-1No. 33-93814)
10(c)+ IBM Brand Paper Trademark Licensing Agreement, effective as of April 30, 1997,
between the Company and International Business Machines Corporation
(incorporated by reference to Exhibit 10-Q/A, dated May 31, 1997)
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to
Registration Statement on Form S-1 No. 33-93814)
27 Financial data schedule
b) No reports on Form 8-K were filed during the quarter ended May 31, 1998.
</TABLE>
+ Confidential Treatment granted for portions of this Exhibit
14
<PAGE> 17
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 there unto duly authorized.
Dated: July 14, 1998
TST/ Impreso, Inc.
(Registrant)
/s/Marshall Sorokwasz
--------------------------------
Marshall Sorokwasz
Chairman of the Board, Chief
Executive Officer, President,
and Director
/s/Susan Atkins
--------------------------------
Susan Atkins
Chief Financial Officer
and Vice President
15
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C>
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-1No. 33-93814)
10(c)+ IBM Brand Paper Trademark Licensing Agreement, effective as of April 30, 1997,
between the Company and International Business Machines Corporation
(incorporated by reference to Exhibit 10-Q/A, dated May 31, 1997)
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
</TABLE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 92,514
<SECURITIES> 11,088
<RECEIVABLES> 6,205,096
<ALLOWANCES> 130,000
<INVENTORY> 10,463,376
<CURRENT-ASSETS> 17,842,699
<PP&E> 13,819,794
<DEPRECIATION> 8,998,142
<TOTAL-ASSETS> 22,765,298
<CURRENT-LIABILITIES> 9,217,261
<BONDS> 0
0
0
<COMMON> 53,038
<OTHER-SE> 11,838,256
<TOTAL-LIABILITY-AND-EQUITY> 22,765,298
<SALES> 34,550,589
<TOTAL-REVENUES> 34,550,589
<CGS> 31,155,106
<TOTAL-COSTS> 31,155,106
<OTHER-EXPENSES> (23,004)
<LOSS-PROVISION> 130,000
<INTEREST-EXPENSE> 362,191
<INCOME-PRETAX> (1,157,030)
<INCOME-TAX> (164,894)
<INCOME-CONTINUING> (992,136)
<DISCONTINUED> 0
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<NET-INCOME> (992,136)
<EPS-PRIMARY> (.19)
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