<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, 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 issuer's classes of
Common Stock as of the latest practical date.
Class of Common Stock Shares outstanding at April 10, 1998
--------------------- ------------------------------------
$ .01 Par Value 5,292,780
<PAGE> 2
TST/IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
FEBRUARY 28, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of February 28,
1998 (Unaudited) and August 31, 1997 1
Interim Consolidated Statements of Operations for the
Six Months Ended February 28, 1998, and 1997
(Unaudited) 3
Interim Consolidated Statements of Cash Flows for the
Six Months Ended February 28, 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 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<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,
1998 1997
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $26,767 $1,766,274
Trade accounts receivable, net of allowance for doubtful
accounts of $130,000 at February 28, 1998 and
August 31, 1997 4,344,791 2,120,168
Investments in marketable securities --- 978,463
Inventories 9,082,410 7,889,949
Prepaid expenses and other 481,082 516,971
Deferred income tax assets 493,119 364,402
---------------- ---------------
Total current assets 14,428,169 13,636,227
---------------- ---------------
Property, plant and equipment, at cost 13,145,401 12,923,242
Less-Accumulated depreciation (8,909,559) (8,765,160)
---------------- ---------------
Net property, plant and equipment 4,235,842 4,158,082
---------------- ---------------
Other assets:
Deposits and other 667,063 426,637
Investments 4,954 4,954
---------------- ---------------
Total assets $19,336,028 $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>
February 28, August 31,
1998 1997
---- ----
Current Liabilities:
<S> <C> <C>
Accounts payable $1,445,681 $434,331
Accrued liabilities 473,102 249,918
Accrued income taxes 69,206 69,387
Current maturities of long-term debt 17,901 5,383
Line of credit 3,538,784 2,836,184
Prepetition liabilities:
Current maturities of prepetition taxes payable 25,722 25,722
Current maturities of long-term debt 66,758 72,187
---------------- ---------------
Total current liabilities 5,637,154 3,693,112
---------------- ---------------
Deferred income tax liability 659,059 642,320
Long-term portion of prepetition debt, net of current maturities 959,337 991,221
Long-term debt, net of current maturities 67,084 15,817
---------------- ---------------
Total liabilities 7,322,634 5,342,470
---------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized; 0 shares
issued and outstanding at February 28, 1998 and
August 31, 1997 -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
5,292,780 shares issued and outstanding at February 28, 1998
and August 31, 1997 52,928 52,928
Warrants 110 110
Additional paid-in-capital 6,319,572 6,319,572
Retained earnings 5,640,784 6,510,820
---------------- ---------------
Total stockholders' equity 12,013,394 12,883,430
---------------- ---------------
Total liabilities and stockholder's equity $19,336,028 $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 Six Months Ended
February 28, February 28,
1998 1997 1998 1997
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Net Sales $9,484,374 $8,766,322 $17,276,380 $17,571,892
Cost of sales 8,769,450 7,764,858 15,472,213 15,327,695
-------------- --------------- --------------- --------------
Gross profit 714,924 1,001,464 1,804,167 2,244,197
Other costs and expenses:
Selling, general and administrative 1,337,185 1,017,237 2,608,947 2,105,635
Interest expense 90,939 47,224 203,738 99,002
Other income, net (14,280) (68,401) (45,086) (90,484)
-------------- --------------- --------------- --------------
Total other costs and expenses 1,413,844 996,060 2,767,599 2,114,153
Income before income tax expense (698,920) 5,404 (963,432) 130,044
Income tax expense (benefit):
Current 13,583 (7,531) 18,583 35,169
Deferred (24,717) 11,248 (111,978) 13,819
-------------- --------------- --------------- --------------
Net income (loss) $(687,786) $1,687 $(870,037) $81,056
============== =============== =============== ==============
Net income (loss) per common share
(basic and diluted) $(0.13) $ -- $(0.16) $0.02
============== =============== =============== ==============
</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>
Six Months Ended
----------------
February 28, February 28,
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $(870,037) $81,056
Adjustments to reconcile net income to net cash flow provided
by operating activities-
Depreciation and amortization 144,400 211,873
Increase (decrease) in deferred income taxes (111,978) 13,819
Increase in accounts receivable, net (2,224,623) (184,698)
Increase in inventory (1,192,461) (1,939,784)
Decrease in prepaid expenses and other 35,889 9,706
Increase in accounts payable 1,011,350 614,485
Increase (decrease) in accrued liabilities 223,184 (38,647)
Decrease in accrued bonuses -- (175,000)
Decrease in accrued income tax (181) (55,556)
---------------- ---------------
Net cash used in operating activities (2,984,457) (1,462,746)
---------------- ---------------
Cash Flows From Investing Activities:
Additions to property, plant, and equipment (222,159) (401,436)
Sale of investments 978,463 250,000
Change in other non current assets, net (240,426) 469,294
---------------- ---------------
Net cash provided by investing activities 515,878 317,858
---------------- ---------------
Cash Flows From Financing Activities:
Net borrowing on line of credit 702,600 1,506,024
Payments on prepetition debt (37,313) (36,270)
Net borrowing (payments) on postpetition debt 63,785 (34,867)
---------------- ---------------
Net cash provided by financing activities 729,072 1,434,887
---------------- ---------------
Net (decrease) increase in cash and cash equivalents (1,739,507) 289,999
Cash and cash equivalents, beginning of period 1,766,274 2,368,395
---------------- ---------------
Cash and cash equivalents, end of period $26,767 $2,658,394
================ ===============
</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
of any normal recurring adjustments, necessary for a fair presentation
of the Company's financial position as of February 28, 1998, and its
results of operations for the three and six months ended February 28,
1998 and 1997. Results of the Company's operations for the interim
period ended February 28, 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>
February 28, August 31,
------------ ----------
1998 1997
---- ----
<S> <C> <C>
Finished goods $4,748,126 $3,915,325
Raw materials 3,674,351 3,493,589
Supplies 626,531 455,738
Work-in-process 33,402 25,297
------------ -----------
Total inventories $9,082,410 $7,889,949
============ ===========
</TABLE>
4. DEBT
Debt as of February 28, 1998, and August 31, 1997, is as follows:
<TABLE>
<CAPTION>
February 28, August 31,
------------ ----------
1998 1997
---- ----
<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 a majority shareholder, interest payable monthly at
prime plus 1% (9.50% at February 28, 1998 and August 31, 1997). $3,538,784 $2,836,184
Notes payable to commercial financial corporations,
secured, payable in monthly installments, interest
rates ranging from 1.30% to prime plus 1.0%. 18,522 21,200
Financing lease payable to a commercial financial
corporation, payable in monthly installments, lease
factor at 7.25%. 66,463 ---
Prepetition-
</TABLE>
6
<PAGE> 9
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Prepetition taxes payable 51,444 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. 579,468 590,011
Other notes payable, secured by a personal guarantee by the trustee
of a trust which is a majority shareholder, and certain property,
plant, equipment, maturity dates ranging from 1998 to
2023, and interest rates ranging from 4% to 10.5%. 420,905 447,675
------------ -------------
Total 4,675,586 3,946,514
Less-Current maturities (3,649,165) (2,939,476)
------------ -------------
Long term debt $1,026,421 $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>
Six Months Ended
February 28,
-------------------------
1998 1997
<S> <C> <C>
Cash paid during the period for:
Interest $ 203,738 $ 99,002
Income taxes -- --
</TABLE>
6. EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (SFAS 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
7
<PAGE> 10
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
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 six months periods ended February
28, 1998, the assumed exercise of outstanding in-the money stock options and
conversion of warrants has an anti-dilutive effect. As a result, these shares
are excluded from the final determination of the weighted average shares
outstanding at February 28, 1998.
<TABLE>
<CAPTION>
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
For the three months ended 2/28/98 For the six months ended 2/28/98
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Net loss attributable to $(687,786) 5,292,780 ($0.13) $(870,037) 5,292,780 $(0.16)
common shareholders
</TABLE>
<TABLE>
<CAPTION>
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
For the three months ended 2/28/98 For the six months ended 2/28/98
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income (loss) attributable to common $1,687 5,247,730 $0.00 $81,056 5,247,730 $0.02
shareholders
Effect of Dilutive Securities:
Options issued to Company Employees 90,551 59,356
and Members of the Board of Directors
Warrants Outstanding 28,329 13,800
--------- --------- ------- --------
DILUTED EARNINGS PER SHARE
Net income (loss) attributable to common $1,687 5,366,610 $0.00 $81,056 5,320,886 $0.02
shareholders
</TABLE>
8
<PAGE> 11
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 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 FEBRUARY 28,1998 AND
FEBRUARY 28,1997
Net Sales---Net sales for the three months ended February 28, 1998, ("Second
Quarter") increased $719,000 million, or 8.2%, as compared to the corresponding
period of the prior year. Net sales for the six months ended February 28, 1998,
decreased $296,000, or 1.7% as compared to the corresponding period of the prior
year. The increase in net sales for the Second Quarter resulted from the
introduction and sales of the new brands and types of products the Company began
manufacturing in the year ending August 31,1998 ("Fiscal 1998"). 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. An
additional contributing factor was a Second Quarter Company sponsored end user
rebate program ("the Rebate Program"or "End User Rebate Program"). The Rebate
Program was offered at large office product superstore retailers on Impreso
labeled products. The decrease in net sales for the six months ended February
28, 1998, was primarily attributable to the Rebate Program, lower average
selling prices for many of the Company's paper products and a shrinking market
for suppliers of continuous forms resulting in decreased selling prices and
reduced sales volume for those products. One single customer, Staples, Inc.,
represented 11% of the Company's revenues during the three months ended February
28, 1998, as compared to 11.5% for the corresponding period of the prior year.
No other single existing or new customer represented a significant portion of
the Company's revenues during this time. However, the loss of this customer or
any of the Company's significant customers could have a material adverse effect
on the Company's business.
Gross Profit---Gross profit for the three months ended February 28, 1998,
decreased $287,000, or 28.6%, to $715,000, as compared to $1.0 million for the
corresponding period of the prior year. Gross profit for the six months ended
February 28, 1998, decreased $440,000, or 19.6%, as compared to the
corresponding period of the prior year. The decreased gross profit was primarily
the result of competitive pricing in the
9
<PAGE> 12
market and costs associated with the implementation of the manufacturing and
sale of the new brands and types of products the Company has introduced and
intends to introduce in Fiscal 1998. The Company's gross profit margin decreased
to 7.5% for the three month period ended February 28, 1998, as compared to 11.4%
of the corresponding period of the prior year due to an increase of
manufacturing expenses as a percentage of net sales as the Company shifts its
manufacturing activities from producing continuous forms to the manufacture of
batch cut sheet products. As a result of decreased gross profit and net sales,
the Company's gross profit margin decreased to 10.4% for the six months ended
February 28, 1998, as compared to 12.8% of the corresponding period of the prior
year.
Selling, General, and Administrative Expenses---SG&A expenses for the three
months ended February 28, 1998, were $1.3 million, or 14.1% of net sales, as
compared to $1.0 million, or 11.6% of net sales, for the corresponding period of
the prior year. SG&A expenses for the six months ended February 28, 1998, were
$2.6 million, or 15.1% of net sales, as compared to $2.1 million, or 12.0% of
net sales for the corresponding period of the prior year. SG&A expenses for the
three months ended February 28, 1998, increased as a percentage of net sales
during this period primarily due to the End User Rebate Program. The rebates
were $371,000, or 54%, of the net loss of $(688,000) for the period. SG&A
expenses for the six months ended February 28, 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 commissions and rebates associated with
the End User Rebate Program.
Interest Expense---Interest expense for the three months ended February 28,
1998, was $ 91,000 as compared to $47,000, an increase of 92.6% from the
corresponding period of the prior year. Interest expense for the six months
ended February 28, 1998, was $204,000 as compared to $99,000, an increase of
105.8% from the corresponding period of the prior year. The increase in interest
expense for the three and six month periods ended February 28, 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 February 28, 1998, as compared to August 31, 1997.
Income (loss) before taxes--- Income (loss) before taxes for the three months
ended February 28, 1998, was $(699,000) as compared to $5,000 for the
corresponding period of the prior year, a decrease of $704,000 or 130.3%. Income
before taxes for the six months ended February 28, 1998, was $(963,000) as
compared to $130,000 for the corresponding period of the prior year, a decrease
of $1.1 million, or 840.8%. The decreases for the three months ended February
28, 1998, was primarily due to costs associated with the implementation of the
manufacturing and sale of the new brands and types of products the Company has
introduced and intends to introduce in Fiscal 1998. The decreases for the six
months ended February 28, 1998, were primarily due to a lower sales volume,
decreases in the selling prices of the Company's products and depressed market
conditions.
Income Taxes---The Company recognized an income tax benefit for the three months
ended February 28, 1998, of $11,000, as compared to a $4,000 provision for taxes
in the corresponding period of the prior year. The Company recognized an income
tax benefit of $94,000 for the six months ended February 28, 1998, as compared
to a $49,000 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 six month periods ended February 28, 1998.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $3.0 million for the six months ended
February 28, 1998, as compared with $1.5 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 six months ended February 28, 1998,
primarily related to increases in accounts receivable, increases in inventory
and decreases in net income. Account receivables increased $2.2 million, or
105%, to $4.3 million at February 28, 1998, as compared to $2.1 million at
August 31, 1998, primarily due to a large purchase by a major office superstore
chain for a private label papers program initiated in the last month of the
Second Quarter. The Company's inventories during the six months ended February
28, 1998, have increased approximately 15.1% from the fiscal year ended August
31, 1997. A majority of the increase in raw material inventory resulted from the
purchase of speciality papers for conversion to cut sheets on the Company's
sheeters. Gross sales of cut sheets for the six month period ended February 28,
1998, increased 141.3%, as compared to the corresponding period of the prior
year. The largest increase of inventory was in finished goods. Finished goods
represented 52.3% of inventory. The increase in finished goods inventory was
primarily due to the increased number of brands and types of products the
Company distributes and the stocking of distribution points of these new
products, in addition to preparing for delivery in the first month of the third
quarter a private label paper program for a major office superstore chain.
Net cash provided by investing activities was $516,000 for the six months ended
February 28, 1998, as compared with $318,000 provided by 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. The investment security was the common
stock of an unrelated publicly traded company, which had been held for
investment purposes.
Net cash provided by financing activities was $729,000 for the six months ended
February 28, 1998, as compared with $1.4 million provided by financing
activities for the corresponding period of the prior year. The decrease in cash
provided by financing activities primarily related to a net decrease in the
Company's net borrowings under its revolving line of credit, as compared to the
corresponding period of the prior year.
Working capital decreased to $8.8 million at February 28, 1998, from $9.9
million at August 31, 1997, a decrease of 11.6%, primarily attributable to an
increase in the Company's revolving line of credit, and a decrease in cash and
cash equivalents.
In May 1997, 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 majority shareholder of the Company. Available borrowings
under this line of credit, which accrues interest at the prime rate of interest
plus 1% (9.50% at February 28, 1998), are based upon specified percentages of
eligible accounts receivable and inventories. As of February 28, 1998, there was
a $1.5 million borrowing capacity remaining under the $5 million revolving line
of credit. The revolving credit line, which had an initial maturity in May 1998,
was renewed and will now expire in May 1999. The renewed loan includes an
increase in the line from $5 million to $12 million, and more favorable terms,
including a reduced interest rate to prime plus 3/4 %.
The Company believes that the funds available under the revolving credit line
facility, cash and cash
11
<PAGE> 14
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, expansion of Company operations due to
demand for the new types and brands of products manufactured by the Company in
Fiscal 1998 may require the Company to obtain additional capital for the
addition of new manufacturing facilities. If that should occur, the funds
required for the 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.
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
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 July 31, 1999. 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 Second 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 is 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. New products introduced in the three months ended February 28, 1998, are
artist canvas for ink-jet printers, T-shirt transfers and transparencies.
12
<PAGE> 15
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 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
At the end of the third quarter in Fiscal 1997, prices for products manufactured
by the Company stabilized and remained stable throughout the fourth quarter and
into the first quarter of Fiscal 1998. Management does not believe that product
selling prices will remain constant in the third and fourth quarters of Fiscal
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, 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
13
<PAGE> 16
business. Parties are cautioned not to rely on any such forward-looking beliefs
or judgments in making investment decisions.
14
<PAGE> 17
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NO. DESCRIPTION OF EXHIBITS
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 February
28, 1998.
+ Confidential Treatment granted for portions of this Exhibit
15
<PAGE> 18
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: April 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
16
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
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
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