<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, 1999
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 issuers' classes of
Common Stock as of the latest practical date.
Class of Common Stock Shares outstanding at July 14, 1999
--------------------- ------------------------------------
$0.01 Par Value 5,292,780
<PAGE> 2
TST/IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
MAY 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets as of May 31,
1999 (Unaudited) and August 31, 1998 1
Interim Consolidated Statements of Operations for the
Three Months and Nine Months Ended May 31, 1999,
and 1998 (Unaudited) 3
Interim Consolidated Statements of Cash Flows for the
Nine Months Ended May 31, 1999, and 1998
(Unaudited) 4
Notes to Interim Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE> 3
TST/IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, August 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 94,959 $ 117,840
Trade accounts receivable, net of allowance for doubtful
accounts of $250,295 at May 31, 1999 and $190,000 at
August 31, 1998 5,862,515 6,234,005
Income tax receivable 479,329 479,329
Investments in marketable securities 11,088 11,088
Inventories 14,252,581 9,189,973
Prepaid expenses and other 308,648 294,590
Deferred income tax assets 95,300 64,600
------------ ------------
Total current assets 21,104,420 16,391,425
------------ ------------
Property, plant and equipment, at cost 16,621,485 16,217,627
Less-Accumulated depreciation (9,493,869) (9,117,371)
------------ ------------
Net property, plant and equipment 7,127,616 7,100,256
------------ ------------
Other assets: 173,404 28,265
------------ ------------
Total assets $ 28,405,440 $ 23,519,946
============ ============
</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
<TABLE>
<CAPTION>
May 31, August 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 2,092,343 $ 1,578,938
Accrued liabilities 1,218,852 1,048,448
Current maturities of long-term debt 29,308 29,095
Line of credit 9,351,266 5,602,601
Prepetition liabilities:
Current maturities of prepetition taxes payable -- 25,722
Current maturities of long-term debt 33,797 49,227
----------- -----------
Total current liabilities 12,725,566 8,334,031
----------- -----------
Deferred income tax liability 720,702 689,482
Long-term portion of prepetition debt, net of current maturities 894,555 919,508
Long-term debt, net of current maturities 1,752,424 1,778,004
----------- -----------
Total liabilities 16,093,247 11,721,025
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized;
0 shares issued and outstanding at May 31, 1999 and
August 31, 1998 -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
5,292,780 shares issued and outstanding at May 31, 1999
and August 31, 1998 52,928 52,928
Warrants 110 110
Additional paid-in-capital 6,319,572 6,319,572
Retained earnings 5,939,583 5,426,311
----------- -----------
Total stockholders' equity 12,312,193 11,798,921
----------- -----------
Total liabilities and stockholder's equity $28,405,440 $23,519,946
=========== ===========
</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,
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net Sales $ 14,942,998 $ 17,274,209 $ 42,965,624 $ 34,550,589
Cost of sales 12,630,625 15,682,893 36,368,727 31,155,106
------------ ------------ ------------ ------------
Gross profit 2,312,373 1,591,316 6,596,897 3,395,483
------------ ------------ ------------ ------------
Other costs and expenses:
Selling, general and administrative 1,889,414 1,604,379 5,215,512 4,213,326
Interest expense 239,710 158,453 594,302 362,191
Other expense (income), net 4,243 22,083 (12,808) (23,004)
------------ ------------ ------------ ------------
Total other costs and expenses 2,133,367 1,784,915 5,797,006 4,552,513
------------ ------------ ------------ ------------
Income (loss) before income tax expense 179,006 (193,599) 799,891 (1,157,030)
------------ ------------ ------------ ------------
Income tax expense (benefit):
Current 65,445 (33,816) 286,099 (15,233)
Deferred (3,575) (37,683) 520 (149,661)
------------ ------------ ------------ ------------
Total income tax expense (benefit) 61,870 (71,499) 286,619 (164,894)
------------ ------------ ------------ ------------
Net income (loss) 117,136 (122,100) 513,272 (992,136)
============ ============ ============ ============
Net income (loss) per common share
(basic and diluted) $ .02 $ (0.02) $ .10 $ (0.19)
============ ============ ============ ============
Weighted average shares outstanding 5,292,780 5,292,780 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
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
May 31, May 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 513,272 $ (992,136)
Adjustments to reconcile net income to net cash flow
provided by operating activities-
Depreciation and amortization 398,542 232,982
Increase (decrease) in deferred income taxes 520 (149,661)
(Increase) decrease in accounts receivable, net 371,490 (4,084,928)
Increase in inventory (5,062,608) (2,573,427)
Increase in prepaid expenses and other (14,058) (4,611)
Increase in accounts payable 513,405 2,950,155
Increase in accrued liabilities 170,404 525,924
Decrease in investments -- 967,375
(Increase) decrease in other assets (145,139) 330,644
----------- -----------
Net cash used in operating activities (3,254,172) (2,797,683)
----------- -----------
Cash Flows From Investing Activities:
Additions to property, plant, and equipment (429,803) (896,865)
Sales of property, plan and equipment, net 3,901 313
----------- -----------
Net cash used in investing activities (425,902) (896,552)
----------- -----------
Cash Flows From Financing Activities:
Net borrowing on line of credit 3,748,665 2,038,747
Payments on prepetition debt (66,105) (79,742)
Net borrowing (payments) on postpetition debt (25,367) 61,470
----------- -----------
Net cash provided by financing activities 3,657,193 2,020,475
----------- -----------
Net decrease in cash and cash equivalents (22,881) (1,673,760)
Cash and cash equivalents, beginning of period 117,840 1,766,274
----------- -----------
Cash and cash equivalents, end of period $ 94,959 $ 92,514
=========== ===========
</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, 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 only of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position as of May 31, 1999, and its results of operations for the
three and nine months ended May 31, 1999 and 1998. Results of the Company's
operations for the interim period ended May 31, 1999, 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.
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,
1999 1998
----------- -----------
<S> <C> <C>
Finished goods $ 5,932,086 $ 4,303,003
Raw materials 7,484,349 4,266,114
Supplies 774,246 574,823
Work-in-process 61,900 46,033
----------- -----------
Total inventories $14,252,581 $ 9,189,973
=========== ===========
</TABLE>
4. LONG -TERM DEBT AND LINE OF CREDIT
The following is a summary of long-term debt and line of credit:
<TABLE>
<CAPTION>
May 31, August 31,
1999 1998
---------- ----------
<S> <C> <C>
Note payable to a commercial financial corporation under a revolving credit
line maturing May 2001, 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 plus1/2% (8.25% at May 31, 1999). $9,351,266 $5,602,601
Note payable to commercial financial corporation, secured, payable
in monthly installments, interest rate at prime plus 1.3%. 11,705 15,818
Financing lease payable to a commercial financial corporation,
payable in monthly installments, lease factor at 7.25%. 52,340 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
May 31, 1999, and August 31, 1998. 1,701,748 1,710,658
Note payable to a commercial financial corporation, secured, payable
in monthly installments, interest rate of 6.7%. 15,939 18,358
Prepetition-
</TABLE>
6
<PAGE> 9
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
<TABLE>
<S> <C> <C>
Prepetition taxes payable -- 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. 552,432 570,220
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% 375,920 398,515
---------- ----------
Total 12,061,350 8,404,157
Less-Current maturities (9,414,371) (5,706,645)
---------- ----------
Long term debt $2,646,979 $2,697,512
========== ==========
</TABLE>
In February 1999, the Company entered into an agreement with its existing lender
for a two year revolving line of credit. The facility, which had an initial
maturity in May 1999, was renewed and will now expire in May 2001. The renewed
loan has more favorable terms, including an increase in the line from $12
million 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.
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
1999 1998
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $594,302 $362,191
Income taxes $302,100 $ 43,555
</TABLE>
7
<PAGE> 10
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
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 and nine months periods ended May 31,
1999, 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 May 31, 1999.
7. SIGNIFICANT CONTRACTS
On March 23, 1999, the Company and IBM executed Amendment Number 2 to the
Trademark Licensing Agreement dated, April 30, 1997. This Amendment provides for
an extension of the term from a period of four years with two automatic one year
renewal options to a period of six years with two automatic one year renewal
options. The Amendment also added six products to the list of licensed products
covered by the Agreement, including one new product not previously manufactured
by the Company (See "New Product" page 13).
On May 26, 1999, the Company announced a new vendor relationship with Corporate
Express, Inc. ("Corporate Express"). Under this agreement TST/Impreso, Inc. will
provide the full line of IBM branded paper and imaging products to Corporate
Express for sale to its customers. In addition, Corporate Express has entered
into an alliance with IBM to become a primary distributor of IBM Roll Paper (See
"New Product" page 13).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED MAY 31, 1999 AND
MAY 31, 1998
Net Sales---Net sales for the three months ended May 31, 1999, ("Third Quarter")
decreased $ 2.3 million, or 13.5%, to $ 14.9 million as compared to $ 17.3
million for the corresponding period of the prior year. Net sales for the nine
months ended May 31, 1999, increased $ 8.4 million, or 24.4%, to $ 43.0 million
as compared to $ 34.6 million for the corresponding period of the prior year.
8
<PAGE> 11
The decrease in net sales for the Third Quarter, as compared to the
corresponding period of the prior year, primarily resulted from the variance of
quantities purchased by a major office superstore chain for a private label
paper program. However, sales to this customer as a percentage of the Net Sales
of the Company for the nine month period ended May 31, 1999, were 5.7 % higher
than the corresponding period of the prior year. This one customer has
represented a significant portion of the Company's revenue to date for the 1999
fiscal year. 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 month period
ended May 31, 1999, as compared to the corresponding period of the prior year,
was primarily due to increased sales of IBM branded products. Net sales of IBM
branded product for the nine month period ended May 31, 1999, increased 204%, as
compared to net sales of IBM branded products in the corresponding period of the
prior year.
Gross Profit---Gross profit for the three months ended May 31, 1999, increased
approximately $ 721,000 or 45.3%, to $ 2.3 million, as compared to $ 1.6 million
for the corresponding period of the prior year, despite a reduction in net sales
of 13.5%. Gross profit for the nine months ended May 31, 1999, increased $ 3.2
million, or 94.3% to $ 6.6 million, as compared to $ 3.4 million for the
corresponding period of the prior year. Gross profit margin for the Third
Quarter and for nine months ended May 31, 1999 increased to approximately 15.5%
from 9.2% and 15.4% from 9.8%, respectively, for the corresponding periods of
the prior year. The Company's increased gross profit and gross profit margin for
the three and nine month periods ended May 31, 1999, was due to the shifting of
Company sales from lower margin continuous forms and uncoated cut sheet paper
products to higher margin branded and technical imaging products.
Selling, General, and Administrative Expenses---SG&A expenses for the three
months ended May 31, 1999, were $ 1.9 million, or 12.6% of net sales as compared
to $ 1.6 million, or 9.3% of net sales, for the corresponding period of the
prior year. SG&A expenses for the nine months ended May 31, 1999, were $ 5.2
million, or 12.1% of net sales, as compared to $ 4.2 million, or 12.2% of net
sales for the corresponding period of the prior year. For the three and nine
month periods ended May 31, 1999, SG&A expenses increased as a dollar amount
during these periods, as compared to the corresponding periods of the prior
year, due to increased net sales of products on which the Company offers
promotional rebates.
Interest Expense---Interest expense for the three months ended May 31, 1999, was
approximately $240,000 as compared to approximately $158,000, an increase of
51.3% from the corresponding period of the prior year. Interest expense for the
nine months ended May 31, 1999, was approximately $594,000 as compared to
approximately $362,000, an increase of 64.1% from the corresponding period of
the prior year.
The increases in interest expense for the three and nine month periods ended May
31, 1999, 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 55.1% increase in inventory as of May 31, 1999, as compared to August
31, 1998.
9
<PAGE> 12
Income Taxes---The Company's income tax expense for the 1999 Third Quarter was
approximately $62,000, as compared to an income tax benefit for the three months
ended May 31, 1998, of approximately $71,000. The Company's income tax expense
for the nine months ended May 31, 1999 was approximately $287,000, as compared
to an income tax benefit of approximately $165,000 for the corresponding period
of the prior year. The income tax expense recorded resulted from reporting net
income for the current year periods as compared to reported losses in the
corresponding period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $8.4 million at May 31, 1999, from $8.1 million at
August 31, 1998. This represented an increase of 4%, primarily attributable to a
55.1% increase in the Company's inventory, partially offset by an approximately
$500,000 increase in accounts payable, and a $3.7 million increase in borrowing
under the Company's line of credit.
In February 1999, the Company entered into an agreement with a bank for a two
year, 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 a
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 1/2% (8.25% at May 31, 1999), are based upon specified percentages of
eligible accounts receivable and inventories. As of May 31, 1999, there was a $
2.3 million borrowing capacity remaining under the $13 million revolving line of
credit. The revolving credit line, which was to expire in May 1999, will now
expire in May 2001. The renewed loan has more favorable terms including, an
increase in the line from $12 million 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.
On March 15, 1999, the Company entered into a letter agreement with the West
Virginia Economic Development Authority ("WVEDA"), to partially fund the
construction of an addition to its facility on property owned by the Company,
adjacent to its West Virginia plant. The Company has initiated site plans and
upon securing the remaining financing for the balance of the project, the
Company will formally execute a contract with the construction company managing
the project.
The Company believes that the funds available under the revolving credit
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, 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 add new manufacturing facilities. If that should occur, the funds required
for the new facilities would be generated through securities 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.
10
<PAGE> 13
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to market risks such as foreign currency exchange
rates, but is exposed to risks such as variable interest rates. Market risk is
the potential loss arising from adverse changes in market prices and rates. The
Company does not have supply contracts with any of its foreign vendors and all
foreign vendors are paid in U.S. currency. In addition, the Company's
international sales of finished goods are insignificant. Accordingly, there are
not sufficient factors to create a material foreign exchange rate risk;
therefore, the Company does not utilize exchange commitments to minimize the
negative impact of foreign currency fluctuations.
The Company has both fixed-rate and variable-rate debts as of May 31, 1999. The
fair market value of long-term variable interest rate debt is subject to
interest rate risk. Generally the fair market value of variable interest rate
debt will decrease as interest rates fall and increase as interest rates rise.
The estimated fair value of the Company's total long-term fixed rate and
floating rate debt approximates fair value. See Note 4 in Notes to Interim
Consolidated Financial Statements.
As of May 31, 1999, the Company did not own derivative or other financial
instruments for trading or speculative purposes.
Based upon the Company's market risk sensitive debt outstanding at May 31, 1999,
there was no material exposure to the Company's financial position or results of
operations.
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, the Company has been steadily increasing its inventory levels. In
addition, increasing international sourcing of raw materials has impacted
delivery cycles resulting in the Company expanding its inventory to accommodate
less frequent, larger shipments. Prices for raw materials increased in the third
quarter in relationship to raw material prices in the second quarter of fiscal
1999. Management believes this market trend will continue into the beginning of
the Company's fiscal year ending August 31, 2000.
The Company bears the risk of changes in the prices charged by its suppliers and
decreases in the selling prices of its inventory. If prices for raw materials
required by the Company increase and the Company is unable to pass the increase
to its customers, or if prices for raw materials decrease and the Company has a
large inventory, or if prices for products held in the finished goods inventory
of the Company decline, or if new technology is developed that renders products
distributed by the Company and held in inventory obsolete, the Company's
business could be materially adversely affected.
11
<PAGE> 14
MARKET CONDITIONS
During the third quarter of fiscal 1999, the Company's suppliers began
increasing the price of raw materials resulting in the Company implementing a
price increase on its finished goods. Another price increase on finished goods
is scheduled to go into effect in the fourth quarter of fiscal 1999. Management
believes that raw material costs will continue to rise. Resistance by customers
to the price increase will continue to create downward pressure on finished
goods selling prices, which could result in lower net sales and profit margins
for the Company. If selling prices for products manufactured by the Company
cannot increase in relationship to raw material cost increases, 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 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") software and was able to complete Year 2000 ("Y2K")
compliance of the System through the modification of existing application
software. In the Third Quarter, the conversion of the software application was
completed and operationally tested for Y2K compatibility. The Company also
completed its conversion and operational testing of database files, and
implemented the converted database. All of the conversions and operational
testing phases of other applications within the System have been substantially
completed, and the Company intends that the System will be Y2K operational by
September 1, 1999.
The Company has completed its review for the Coppell and California locations of
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 did not
detect any material problems in the information systems or production equipment
at these locations. At the completion of the review for the remaining
manufacturing location in West Virginia, scheduled for July 31, 1999, management
will assess what equipment of the Company is mission critical and non
compatible. Since there have not been any material problems identified to date,
potential costs of making this equipment Y2K compliant is unknown; therefore, no
estimate has been included in the total estimated cost of remediation. If a
corrective action plan is necessary, 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. Costs incurred to date are
approximately $75,000. The Company does not expect the cost of Y2K compliance to
be material to its future financial condition or results
12
<PAGE> 15
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.
In the fiscal quarter ended February 28, 1999, the Company began surveying the
Y2K compliance status of its primary suppliers and significant customers.
Management believes, as a result of the numerous questionnaires the Company has
received from its suppliers and customers and the responses to its survey from
its suppliers and customers, that a significant majority of its customers and
suppliers are actively addressing Y2K problems and intend to be Y2K compliant
prior to December 31, 1999. The Company's survey will assist management in
assessing third party risks, but the Company does not intend to develop a formal
contingency plan. If significant third party supplier systems do not work
properly, the Company may experience operation disruptions including temporary
inability to manufacture or ship product, process transactions, communicate with
customers, suppliers and subsidiary locations, and other customary business
activity. Should one of the Company's facilities experience significant
operation disruptions, the Company intends to shift production from the
disrupted facility to one of its other locations.
NEW PRODUCT
In June 1999 the Company introduced a new rolled paper product line. The rolls
weigh approximately 500 pounds each and are specifically engineered for high
speed roll fed printing systems. These rolls are utilized by companies such as
investment banking institutions and publishing companies, for variable data
output applications such as customized statements and book publishing. The
advantage of utilizing high speed roll fed printing systems for mass production
over traditional methods of offset printing, are lower costs and faster speeds
of production without sacrificing image quality. The Company is manufacturing
this product line on new and existing equipment. Existing equipment, which
previously manufactured paper products with declining market shares, was
modified to accommodate the manufacture of this specially controlled paper.
WEBSITE
On June 1, 1999, the Company HotSheet.com(R) online web reference directory (,
launched its redesigned website. The design changes improve the ease-of-use and
enhance the functionality of the site. The new design allows users to view all
the links in a particular category without scrolling. A new navigation bar at
the top of the page provides the ability to "jump" instantly to any primary
category, and new colored headings clearly distinguish individual categories
within the page. In addition to the previously-announced addition of HotSheet
Super Search (a meta-search service provided in association with Mamma Systems,
Inc.) to the site, HotSheet.com now provides co-branded searches for weather,
stock quotes, media listings, and price comparison data.
13
<PAGE> 16
The Company intends to either retain and develop its web portals into valuable
corporate assets, proceed with an initial public offering, or sell the sites to
an unrelated third party. The Company has continued its search for an investment
banker to assist management in the development of strategies to maximize their
value to the Company. The Company continues to invest in its sites by
associating with vendors in the industry which provide income generating
services.
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 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 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 based on
current expectations, estimates, forecasts and projections about the market
sectors in which the Company operates, management's beliefs, and assumptions
made by management; they 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.
14
<PAGE> 17
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND ON FORM 8-K
EXHIBIT NO. DESCRIPTION OF EXHIBITS
a) 27 Financial data schedule
b) No reports on Form 8-K were filed during the quarter ended
May 31, 1999.
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: July 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
Chief Financial Officer
and Vice President
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
27 Financial data schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 94,959
<SECURITIES> 0
<RECEIVABLES> 5,862,515
<ALLOWANCES> 250,295
<INVENTORY> 14,252,581
<CURRENT-ASSETS> 21,104,420
<PP&E> 16,621,485
<DEPRECIATION> 9,493,869
<TOTAL-ASSETS> 28,405,440
<CURRENT-LIABILITIES> 12,725,566
<BONDS> 0
0
0
<COMMON> 53,038
<OTHER-SE> 12,259,155
<TOTAL-LIABILITY-AND-EQUITY> 28,405,440
<SALES> 42,965,624
<TOTAL-REVENUES> 42,965,624
<CGS> 36,368,727
<TOTAL-COSTS> 36,368,727
<OTHER-EXPENSES> (12,808)
<LOSS-PROVISION> 250,295
<INTEREST-EXPENSE> 594,302
<INCOME-PRETAX> 799,891
<INCOME-TAX> 286,619
<INCOME-CONTINUING> 513,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513,272
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
