<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 NOVEMBER 30, 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 its charter)
DELAWARE 75-1517936
(state or other jurisdiction of (I.R.S.
Employer incorporation or organization) Identification No.)
652 SOUTHWESTERN BOULEVARD
COPPELL, TEXAS 75019
(Address of principal executive offices)
TELEPHONE NUMBER (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 issurers' classes of
Common Stock as of the latest practical date.
Class of Common Stock Shares outstanding at January 13, 1999
- --------------------- -------------------------------------
$0.01 Par Value 5,292,780
<PAGE> 2
TST/IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
NOVEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION PAGE NUMBER
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of November,
30, 1998, (Unaudited) and August 31, 1998 1
Interim Consolidated Statements of Operations for the
Three Months Ended November 30, 1998, and 1997
(Unaudited) 3
Interim Consolidated Statements of Cash Flows for the
Three Months Ended November 30, 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 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
<PAGE> 3
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30, 1998 August 31,1998
(Unaudited)
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 259,503 $ 117,840
Trade accounts receivable, net of allowance for
doubtful accounts of $ 210,227 at November 30,1998
and $190,000 at August 31, 1998 5,542,534 6,234,005
Income tax receivable 479,329 479,329
Investments in marketable securities 11,088 11,088
Inventories 9,271,496 9,189,973
Prepaid expenses and other 309,670 294,590
Deferred income tax assets 85,000 64,600
------------ ------------
Total current assets 15,958,620 16,391,425
------------ ------------
Property, plant and equipment, at cost 16,259,192 16,217,627
Less-Accumulated depreciation (9,237,729) (9,117,371)
------------ ------------
Net property, plant and equipment 7,021,463 7,100,256
------------ ------------
Other assets 36,702 28,265
------------ ------------
Total assets $ 23,016,785 $ 23,519,946
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
1
<PAGE> 4
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 30,1998 August 31,1998
(Unaudited)
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,820,710 $ 1,578,938
Accrued liabilities 849,686 1,048,448
Current maturities of long-term debt 29,308 29,095
Line of credit 3,920,579 5,602,601
Prepetition liabilities:
Current maturities of prepetition taxes payable 25,722 25,722
Current maturities of long-term debt 49,699 49,227
----------- -----------
Total current liabilities 7,695,704 8,334,031
----------- -----------
Deferred income tax liability 711,738 689,482
Long-term portion of prepetition debt, net of current maturities 903,880 919,508
Long-term debt, net of current maturities 1,769,841 1,778,004
----------- -----------
Total liabilities 11,081,163 11,721,025
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized;
0 shares issued and outstanding -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
5,292,780 shares issued and outstanding 52,928 52,928
Warrants 110 110
Additional paid-in capital 6,319,572 6,319,572
Retained earnings 5,563,012 5,426,311
----------- -----------
Total stockholders' equity 11,935,622 11,798,921
----------- -----------
Total liabilities and stockholders' equity $23,016,785 $23,519,946
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
2
<PAGE> 5
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $14,272,022 $ 7,792,006
Cost of sales 12,203,377 6,702,763
----------- -----------
Gross Profit 2,068,645 1,089,243
----------- -----------
Other costs and expenses:
Selling, general and administrative 1,644,936 1,271,762
Interest expense 181,733 112,799
Other expenses (income), net 19,221 (30,806)
----------- -----------
Total other costs and expenses 1,845,890 1,353,755
----------- -----------
Income (loss) before income tax expense 222,755 (264,512)
Income tax expense (benefit):
Current 84,199 5,000
Deferred 1,856 (87,261)
----------- -----------
Net income (loss) $ 136,700 $ (182,251)
=========== ===========
Net income (loss) per common share (basic and diluted) $ .03 $ (0.03)
=========== ===========
Weighted average shares outstanding 5,292,780 5,292,780
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE> 6
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (loss) $ 136,700 $ (182,251)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 120,358 93,545
Increase (decrease) in deferred income taxes 1,856 (87,261)
(Increase) decrease in accounts receivable, net 691,471 (1,603,542)
(Increase) decrease in marketable securities -- 978,463
Increase in inventories (81,523) (847,200)
(Increase) decrease in prepaid expenses and other (15,080) 91,037
(Increase) decrease in other noncurrent assets (8,436) 3,292
Increase in accounts payable 1,241,772 1,228,767
Increase (decrease) in accrued liabilities (198,762) 58,889
----------- -----------
Net cash provided by (used in) operating activities 1,888,356 (266,261)
----------- -----------
Cash Flows From Investing Activities:
Additions to property, plant and equipment (52,065) (157,639)
Sales of property, plant, and equipment, net 10,500 --
Net cash provided by (used in) investing activities (41,565) (157,639)
----------- -----------
Cash Flows From Financing Activities:
Borrowings (payments) on line of credit, net (1,682,022) (1,209,774)
Payments on prepetition debt (15,156) (18,316)
Borrowings (payments) on post petition debt, net (7,950) (1,336)
----------- -----------
Net cash used in financing activities (1,705,128) (1,229,426)
----------- -----------
Net increase (decrease) in cash and cash equivalents 141,663 (1,653,326)
Cash and cash equivalents, beginning of period 117,840 1,766,274
----------- -----------
Cash and cash equivalents, end of period $ 259,503 $ 112,948
=========== ===========
</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, and digital photo
paper, transparencies, fine business stationary, adding machine rolls and large
rolls for laser printers. TST/Impreso, Inc. has three wholly owned subsidiaries:
Big Time Paper, Inc., TST/Impreso of California, Inc., and Texas Stock Tab of
West Virginia, Inc. Each subsidiary was formed to support activities of
TST/Impreso, Inc. (referred to collectively with its consolidated subsidiaries
as the "Company").
2. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the Interim Unaudited Consolidated Financial
Statements of the Company include all adjustments, consisting of any normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position as of November 30, 1998, and its results of operations for
the three months ended November 30, 1998 and 1997. Results of the Company's
operations for the interim period ended November 30, 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, 1998, ("Fiscal
1998") 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.
Inventories consisted of the following:
<TABLE>
<CAPTION>
November 30, August 31,
1998 1998
<S> <C> <C>
Finished Goods $4,871,970 $4,303,003
Raw Materials 3,754,884 4,266,114
Supplies 592,753 574,823
Work-in-process 51,889 46,033
---------- ----------
Total Inventories $9,271,496 $9,189,973
</TABLE>
5
<PAGE> 8
4. LONG-TERM DEBT AND LINE OF CREDIT:
The following is a summary of long-term debt and line of credit:
<TABLE>
<CAPTION>
November 30, August 31,
1998 1998
------------ ----------
<S> <C> <C>
Note payable to a commercial financial corporation under a revolving
credit line maturing May 1999, secured by inventories, 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 of the Company,
interest payable monthly at prime plus 3/4% (8.50% at
November 30, 1998, and 9.25% at August 31,1998) $3,920,579 $5,602,601
Note payable to commercial financial corporation, secured, payable
in monthly installments, interest rate at prime plus 1.3%. 14,456 15,818
Financing lease payable to a commercial financial corporation,
payable in monthly installments, lease factor at 7.25%. 59,024 62,265
Note payable to a bank secured by property, payable in monthly
installments of $14,391.22 (including interest at 4.5% above the 11th
District Cost of Funds rate, adjusted every six months), 9.5% at
November 30, 1998, and August 31, 1998. 1,708,106 1,710,658
Note payable to a commercial financial corporation, secured, payable
in monthly installments, interest rate of 6.7%. 17,563 18,358
Prepetition-
Prepetition taxes payable 25,722 25,722
Note payable to a bank, secured by property, payable in monthly
installments of $4,815 (including interest at 6%) through May 2003,
at which time the remaining balance becomes due and payable. 564,280 570,220
Other notes payable, secured by one or more of the following: a personal
guarantee by the trustee of a trust which is a principal shareholder of
the Company, and certain property, plant, and equipment, maturity
dates to 2023, interest rates ranging from 4% to 8%. 389,299 398,515
Total 6,699,029 8,404,157
Less-Current maturities (4,025,308) (5,706,645)
----------- -----------
Long term debt $2,673,721 $2,697,512
=========== ===========
</TABLE>
In January 1999, the Company negotiated an increase in its revolving credit
facility with its current lender from $12 million to $13 million . The facility,
which has a current maturity in May 1999, will be renewed and will now expire in
May 2001. The renewed loan will have more favorable terms including, a decreased
interest rate ranging from prime plus 1/2% to prime plus 1/4% based upon
financial performance, and an increased percentage on borrowings based on
inventory.
6
<PAGE> 9
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
November 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $181,733 $112,799
Income taxes $18,332 $18,764
</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
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 month period ended November 30, 1998,
the assumed exercise of outstanding in-the money stock options and conversion of
warrants were immaterially dilutive. As a result, these shares are excluded from
the final determination of the weighted average shares outstanding at November
30, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDING NOVEMBER 30, 1998, AND
1997.
Net Sales---Net sales increased 83%, to $14.3 million for the three months ended
November 30, 1998 ("First Quarter Fiscal 1999"), from $ 7.8 million in the three
months ended November 30, 1997, ("First Quarter Fiscal 1998"), as a result of
expanding distribution of the new branded and specialty imaging products offered
by the Company , and large purchases by a major office superstore chain for a
private label program. 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.
Gross Profit---Gross profit increased 89.9% to $2.1 million in the First Quarter
Fiscal 1999, from $1.1 million in the corresponding period of the prior year.
The increased gross profit was primarily the result of increased sales of
branded products and higher margin products, and lower material costs. The
Company's gross profit margin was 14.5 % for the First Quarter Fiscal 1999, as
compared to 14% for the corresponding period of the prior year due to the
shifting of Company sales from lower margin continuous forms and uncoated cut
sheet paper products to higher margin technical imaging products. There can be
no assurance, however, that gross profit margins will be maintained or continue
to increase, or if increased, such sales of higher margin products will result
in a significant impact on the Company's profitability.
7
<PAGE> 10
Selling, General, and Administrative Expenses--- SG&A expenses for the First
Quarter Fiscal 1999 were $1.6 million, or 11.5% of net sales, as compared to
$1.3 million, or 16.3 % of net sales for the corresponding period of the prior
year. The decrease in SG&A as a percentage of net sales for the First Quarter
Fiscal 1999 resulted primarily from the increased sales volume. SG&A expenses
increased as a dollar amount during this period, as compared to the
corresponding period of the prior year, due to increased net sales of products
on which the Company offers commissions and rebates.
Interest Expense---Interest expense increased by $69,000, or approximately 61%,
to $182,000 for the First Quarter Fiscal 1999 months ended November 30, 1998,
from $113,000 for the corresponding period of the prior year. The increase was
primarily attributable to financing acquisitions of property and equipment.
Income Taxes---The Company's income tax expense for the First Quarter Fiscal
1999 was $86,000, as compared to an income tax benefit of $82,000 for the
corresponding period of the prior year. The income tax expense recorded resulted
from reporting net income for the current year period as compared to reported
losses in the corresponding period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased slightly to $8.3 million at November 30, 1998, from
$8.1 million at August 31, 1998, an increase of 2.6%, primarily attributable to
a decrease in the amount outstanding under the Company's line of credit.
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% (8.50% at November 30, 1998), are based upon specified percentages of
eligible accounts receivable and inventories. As of November 30, 1998, there was
a $2.2 million borrowing capacity remaining under the $12 million revolving line
of credit. The revolving credit line, which was to expire in May 1999, will be
renewed and will now expire in May 2001. The renewed loan will have more
favorable terms including an increase in the line to $13 million, a decreased
interest rate ranging from prime plus 1/2% to prime plus 1/4% based upon
financial performance, and an increased percentage on borrowings based on
inventory.
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, no extraordinary adverse events, and the renewal of
the Company's line of credit on favorable terms, as described above. 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, may require the Company to obtain additional
capital to pursue 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.
8
<PAGE> 11
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of November 30, 1998, the Company did not own market risk sensitive
instruments entered into for trading purposes or entered into for purposes other
than trading. The Company's international sales are not sufficient to create a
material foreign exchange rate risk; therefore the Company does not promulgate
policies for managing such risks.
INVENTORY MANAGEMENT; RAW MATERIALS
The Company believes that it is necessary to maintain an inventory of finished
goods and raw materials to adequately service its customers. As a result of the
Company's manufacturing and distributing new brands and types of products, its
raw material and finished goods inventory requirements have increased;
therefore, in the past year the Company has substantially increased its
inventory levels. In the First Quarter Fiscal 1999, inventory levels remained
constant, but management intends to further increase its inventories in response
to market trends indicating increasing raw material costs.
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 increase, or if new technology
is developed that renders obsolete products distributed by the Company and held
in inventory, the Company's business could be materially adversely affected.
MARKET CONDITIONS
During the second, third and fourth quarters of Fiscal 1998, prices of raw
materials declined for a majority of the products manufactured or distributed by
the Company. When raw material prices decrease, product selling prices can
decrease as a result of over supply and pricing pressures from competitors with
cheaper raw material inventory. In the First Quarter Fiscal 1999, prices for
certain raw materials continued to decrease, which resulted in decreased selling
prices on some of the products manufactured by the Company.
Management believes that raw material selling prices will not continue on the
downward trend for the remainder of Fiscal 1999. Management believes that raw
material paper suppliers have reached the bottom of the break even price curve
for their products. However, the continuing oversupply of paper will continue to
create downward pressure on finished goods selling prices, which could result in
lower profit margins for manufacturers such as the Company. If prices for
products manufactured by the Company decline as a result of market pressures,
the Company's results of operations would be materially adversely affected.
The increased growth of discount retailers, such as office superstores, and the
increase of sales to those retailers as a percentage of the total sales of the
Company have also contributed to the profit pressure, as price wars among these
discount retailers impact their suppliers.
SEASONALITY
The Company may be subject to certain seasonal fluctuations in that orders for
products may decline over the summer months. However, the Company does not
believe that such fluctuations have a material adverse effect on its results of
operations.
YEAR 2000
The Company has completed the problem identification phase of its main computer
system's (the "System")
9
<PAGE> 12
software and believes that it will be able to complete Year 2000 ("Y2K"),
compliance of the System through the modification of existing application
software. The Company's management information systems ("MIS ) department is
currently implementing the conversion plan for the application software. The
Company has retained an outside consultant to review the plan and assist MIS in
implementing the software conversion. As each phase of conversion of the
software application is completed, it will be operationally tested for Y2K
compatibility. The Company has completed its conversion of database files and
intends to complete that operational testing by the end of the second quarter of
the Company's 1999 fiscal year. All of the conversion and operational testing
phases for the System are scheduled for completion by July 31,1999.
The Company is in the problem identification phase for its other information
technology equipment, such as independent personal computers ("P.C."s), and all
non-information technology equipment, such as the embedded controls in the
Company's manufacturing equipment. The Company has retained another outside
consulting firm (the"Consultants") to conduct an audit on this equipment. The
initial review, which began in September 1998, has been completed for the
Coppell headquarters location. The Consultants have indicated that they have not
detected any material problems in the information systems or production
equipment at this location to date. At the completion of the review for the two
remaining manufacturing locations, management will prepare with the Consultants
a corrective action plan required for any mission critical non compatible
equipment. Since there have not been any material problems identified to date,
potential costs of making this equipment Y2K compliant is unknown, and because
of the opinion of the Consultants, at this time, of minimal exposure, no
estimate has been included in the total estimated cost of remediation. At the
completion of the preparation of a corrective action plan, total estimated costs
will be revised in future filings to reflect additional expenditures associated
with implementing the plan.
Total estimated costs to the Company of remediation of all information and
non-information technology is approximately $250,000. The Company does not
expect the cost of Y2K compliance to be material to its future financial
condition or results of operations. Although the Company is utilizing both
internal and external resources to implement and test the Y2K activities to
eliminate transition interruptions or failure, there can be no assurance that
these efforts will be successful. The costs of the Y2K compliance and
anticipated dates of completion are based on management's 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 Y2K
compliance status of its suppliers and customers, has not formally assessed
third party risks, and does not have a formal contingency plan. Management
believes, as a result of the numerous questionnaires the Company has received,
that the significant majority of its customers and suppliers are actively
addressing Y2K problems. In the opinion of Management, an investigation by the
Company into which of its vendors and customers are nearing compliance, and
consequently assessing the risk of such noncompliance and preparing a
contingency plan will be more accurate and effective if conducted by mid 1999
when sufficient activity has transpired to make the suppliers and customers
responses meaningful. At that time management will still have sufficient
opportunity to implement corrective action or report estimated costs or losses
associated with third party noncompliance. Management anticipates that the worst
case scenario would be a temporary suspension of activities for a few weeks
following the first of the year, which is historically a short seasonal
fluctuation for the Company. A shut down of this nature would adversely impact
revenues for the reporting quarter.
10
<PAGE> 13
NEW PRODUCT
At the end of January 1999, the Company will introduce a new product line of
laser copy rolls. Laser copy rolls are rolls weighing approximately 500 pounds
each and are utilized by companies such as investment banking institutions and
universities for variable data output applications such as customized statements
and book publishing. The Company will manufacture this product line on new and
existing equipment. The existing equipment, which previously manufactured paper
products with declining market shares, will be modified to accommodate the
manufacture of this specially controlled paper. The Company's line of laser copy
rolls is specifically engineered for high speed roll fed printing systems and
will be available in a variety of widths and formats. The advantage of utilizing
laser copy rolls for mass production over traditional methods of offset printing
is lower costs and faster speeds of production without sacrificing image
quality. The Company has created a web page for this product line posting
technical information, providing trained technical assistance, and offering
secured on-line ordering.
SUBSEQUENT EVENTS
On September 29, 1998, the Company received notice from The Nasdaq Stock Market
that the Company's Common Stock was failing to maintain a market value of public
float greater than or equal to $5 million in accordance with Marketplace Rule
4450(a)(2) under Maintenance Standard 1 for the Nasdaq National Market. The
Company is currently in compliance with all of the remaining maintenance
standard requirements, such as net tangible assets and minimum bid price. The
market value of public float is calculated by multiplying the number of shares
of Common Stock held by non-affiliates by the closing bid price. Compliance
requires that for a minimum of ten consecutive trading days, the closing bid
price of the Company's Common Stock is sufficient to place the value of public
float greater than $5 million. As of December 31, 1998, that would require a
closing bid price of approximately $3.90. The Company was given approximately 3
months to regain compliance. The Company did not meet the required market value
of public float within the time frame provided by Nasdaq and has requested an
oral hearing from the Nasdaq Stock Market Hearing Committee for further
procedural remedies to stay the delisting. Following the First Quarter earnings
press release on December 14, 1998, the price of the Company's stock fluctuated
around the target minimum price per share necessary to regain compliance, but
did not close at or above the target price for 10 consecutive days as required.
As of January 13, 1999, the Company has not received a response from the Nasdaq
Stock Market Hearing Committee as to the date of the hearing. The Company's
Common Stock will continue to be traded on the Nasdaq National Market until the
Hearing Committee renders its decision.
If the Company's Common Stock is delisted from the Nasdaq National Market, the
Company may apply for listing on the Nasdaq Small Cap Market. There can be no
assurance, however, that the Company will qualify for such listing or can remain
in compliance with the Nasdaq Small Cap Market maintenance standards. If the
Company does not qualify for listing on either of the Nasdaq markets, the
Company may apply for listing on the OTC Bulletin Board, or may consider taking
the Company private. The OTC Bulletin Board is a regulated quotation service
that displays real-time information on over-the-counter (OTC) equity securities.
An OTC equity security generally is any equity that is not listed or traded on
Nasdaq or a national securities exchange.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and the Results of
Operations and other sections of this Annual Report 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 generate additional sales to meet
business expansion and future market conditions, its ability
11
<PAGE> 14
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 identify, evaluate and
implement corrective action for potential Year 2000 problems. 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, 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, loss of any significant
customer, and termination of contracts essential to the Company's business.
Parties are cautioned not to rely on any such forward-looking statements or
judgments in making investment decisions.
12
<PAGE> 15
PART II: OTHER INFORMATION
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-1 No.
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 November 30, 1998.
</TABLE>
+ Confidential Treatment granted for portions of this Exhibit
13
<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: January 14, 1999
TST/ Impreso, Inc.
(Registrant)
/s/ Marshall Sorokwasz
---------------------------------
Marshall Sorokwasz
Chairman of the Board, Chief
Executive Officer, President
and Director
/s/ Susan Atkins
---------------------------------
Susan Atkins
Vice President and
Chief Financial Officer
14
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 259,503
<SECURITIES> 11,088
<RECEIVABLES> 6,211,863
<ALLOWANCES> 190,000
<INVENTORY> 9,271,496
<CURRENT-ASSETS> 15,958,620
<PP&E> 16,259,192
<DEPRECIATION> 9,237,729
<TOTAL-ASSETS> 23,016,785
<CURRENT-LIABILITIES> 7,695,704
<BONDS> 0
0
0
<COMMON> 53,038
<OTHER-SE> 11,882,584
<TOTAL-LIABILITY-AND-EQUITY> 23,016,785
<SALES> 14,272,022
<TOTAL-REVENUES> 14,272,022
<CGS> 12,203,377
<TOTAL-COSTS> 12,203,377
<OTHER-EXPENSES> 19,221
<LOSS-PROVISION> 190,000
<INTEREST-EXPENSE> 181,733
<INCOME-PRETAX> 222,755
<INCOME-TAX> 86,055
<INCOME-CONTINUING> 136,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,700
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
