-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IegZJ8UQDLbAWAgHuNCrzK931OScILVY8LoXLA6X4crhyFMCNHkLPJ/DXjbA3NhM 9kYDAOSWZ/q3ct9v7gcKmA== 0000950134-97-002911.txt : 19970415 0000950134-97-002911.hdr.sgml : 19970415 ACCESSION NUMBER: 0000950134-97-002911 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970414 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TST/IMPRESO INC CENTRAL INDEX KEY: 0000947219 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 751517936 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26774 FILM NUMBER: 97580307 BUSINESS ADDRESS: STREET 1: 652 SOUTHWESTERN BLVD CITY: COPPELL STATE: TX ZIP: 75019 BUSINESS PHONE: 2144620100 MAIL ADDRESS: STREET 1: PO BOX 506 CITY: COPPELL STATE: TX ZIP: 75019 10-Q 1 FORM 10-Q QUARTER END FEBRUARY 28, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE PERIOD ENDED FEBRUARY 28, 1997 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER 0-26774 TST/IMPRESO, INC. (exact name of registrant as specified in it's charter) DELAWARE 75-1517936 (state or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 652 SOUTHWESTERN BOULEVARD COPPELL, TEXAS 75019 (Address of principal executive offices) TELEPHONE NUMBER (972) 462-0100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No ----- ----- Indicate the number of shares outstanding of each of the issurer's classes of Common Stock as of the latest practical date. Class of Common Stock Shares outstanding at April 10, 1997 --------------------- ------------------------------------- $ .01 Par Value 5,247,730
2 TST/IMPRESO, INC. AND SUBSIDIARIES FORM 10-Q FEBRUARY 28, 1997 INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER Item 1. Consolidated Financial Statements: Interim Consolidated Balance Sheets as of February 28, 1997 (Unaudited) and August 31, 1996 . . . . . . . . . . . . 2 Interim Consolidated Statements of Operations for the Six Months Ended February 28, 1997 and February 29, 1996 (Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . 4 Interim Consolidated Statements of Cash Flows for the Six Months Ended February 28, 1997 and February 29, 1996 (Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Interim Consolidated Financial Statements . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 14 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1 3 PART 1: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS TST/IMPRESO, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED BALANCE SHEETS ASSETS (UNAUDITED)
February 28, August 31, 1997 1996 ------------ ------------ Current assets: Cash and cash equivalents $ 2,658,394 $ 2,368,395 Trade accounts receivable, net of allowance for doubtful accounts of $130,000 at February 28, 1997 and $163,633 at August 31, 1996 3,075,109 $ 2,890,411 Investments -- 250,000 Inventories 8,283,515 6,343,731 Prepaid expenses and other 292,025 301,731 ------------ ------------ Total current assets 14,309,043 12,154,268 Property, plant, and equipment, at cost 12,867,302 12,465,865 Less-Accumulated depreciation (8,584,607) (8,372,733) ------------ ------------ Net property, plant, and equipment 4,282,695 4,093,132 Other assets: Deposits and other 239,457 708,751 Investments 4,954 4,954 ------------ ------------ Total assets $ 18,836,149 $ 16,961,105 ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS. 2 4 TST/IMPRESO, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED BALANCE SHEETS - (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
February 28, August 31, 1997 1996 ----------- ----------- Current liabilities: Accounts payable $ 2,178,147 $ 1,563,662 Accrued liabilities 201,239 239,886 Accrued bonuses -- 175,000 Accrued income taxes 13,679 69,235 Current maturities of long-term debt 1,700 36,769 Line of credit 1,644,415 138,391 liabilities- Current maturities of prepetition taxes payable 25,722 25,722 Current maturities of long-term debt 73,230 74,975 ----------- ----------- Total current liabilities 4,138,132 2,323,640 Deferred income tax liability 581,437 567,618 Long-term portion of prepetition debt, net of current maturities 1,053,955 1,088,480 Long-term debt, net of current maturities 3,511 3,309 ----------- ----------- Total liabilities 5,777,035 3,983,047 ----------- ----------- Commitments and contingencies Stockholders' equity: Preferred Stock, $.01 par value; 5,000,000 shares authorized; 0 shares issued and outstanding at February 28, 1997, and August 31, 1996 -- -- Common Stock, $.01 par value; 15,000,000 shares authorized 5,247,730 shares issued and outstanding at February 28, 1997, and August 31, 1996 52,477 52,477 Warrants 110 110 Additional paid-in capital 5,937,896 5,937,896 Retained earnings 7,068,631 6,987,575 ----------- ----------- Total stockholders' equity 13,059,114 12,978,058 ----------- ----------- Total liabilities and stockholders' equity $18,836,149 $16,961,105 ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE SHEETS. 3 5 TST/IMPRESO, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended ------------------ ---------------- February 28 February 29, February 28, February 29, 1997 1996 1997 1996 ------------ ----------- ------------ ------------ Net Sales $ 8,766,322 $13,445,934 $ 17,571,892 $ 25,325,138 Cost of sales 7,764,858 10,673,446 15,327,695 20,211,617 ------------ ----------- ------------ ------------ Gross profit 1,001,464 2,772,488 2,244,197 5,113,521 Other costs and expenses: Selling, general, and administrative 1,017,237 1,145,081 2,105,635 2,255,141 Interest expense 47,224 72,093 99,002 261,570 Other (income) expense, net (68,401) 6,215 (90,484) 36,036 ------------ ----------- ------------ ------------ Total other costs and expenses 996,060 1,223,389 2,114,153 2,552,747 Income before income tax expense and 5,404 1,549,099 130,044 2,560,774 extraordinary gain Income tax expense: Current (7,531) 530,060 35,169 899,344 Deferred 11,248 (5,706) 13,819 15,880 ------------ ----------- ------------ ------------ Income before extraordinary gain 1,687 1,024,745 81,056 1,645,550 Extraordinary gain from debt reduction and restructuring due to bankruptcy, net of tax effect of $83,808 and $159,377 respectively -- 162,049 -- 294,430 ------------ ----------- ------------ ------------ Net income $ 1,687 $1 ,186,794 $ 81,056 $ 1,939,980 Income per share (primary and fully diluted): Income before extraordinary gain $ -- $ 0.20 $ 0.02 $ 0.33 Extraordinary gain -- 0.03 -- 0.06 ------------ ----------- ------------ ------------ Net income per common share $ -- $ 0.23 $ 0.02 $ 0.39 ------------ ----------- ------------ ------------ Weighted average shares outstanding 5,247,730 5,247,730 5,247,730 4,933,006
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 6 TST/IMPRESO, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended ---------------- February 28, February 29, 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 81,056 $ 1,939,980 Adjustments to reconcile net income to net cash flow provided by operating activities- Extraordinary gain -- (453,807) Depreciation and amortization 211,873 174,669 Deferred income taxes 13,819 15,880 (Increase) in accounts receivable, net (184,698) (997,813) (Increase) decrease in inventory (1,939,784) 447,020 (Increase) decrease in prepaid expenses and other 9,706 (39,631) Increase in accounts payable 614,485 719,150 Increase (decrease) in accrued liabilities (38,647) 24,728 Increase (decrease) in accrued bonuses (175,000) (540,539) Increase (decrease) in accrued income taxes (55,556) 265,351 ----------- ----------- Net cash provided by (used in) operating activities (1,462,746) 1,554,988 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant, and equipment (401,436) (571,181) Sale of investments 250,000 -- Change in other non current assets, net 469,294 325,908 ----------- ----------- Net cash provided by (used in) investing activities 317,858 (245,273) ----------- ----------- CASH FLOW FROM FINANCING ACTIVITIES: Net borrowing (payments) on line of credit 1,506,024 (3,843,083) Payments on prepetition debt (36,270) (2,631,311) Payments on postpetition debt, net (34,867) (41,307) Sale of Common Stock and warrants -- 5,977,476 ----------- ----------- Net cash provided by (used in) financing activities 1,434,887 (538,225) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS: 289,999 771,490 Cash and cash equivalents, beginning of period 2,368,395 92,081 ----------- ----------- Cash and cash equivalents, end of period $ 2,658,394 $ 863,571 ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 7 TST/IMPRESO, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND NATURE OF BUSINESS TST/Impreso, Inc., a Delaware corporation, is a manufacturer and distributor to dealers and other resellers of paper products for commercial and home use in domestic and international markets. The Company's product line consists of standard continuous computer stock business forms for use in computer printers; facsimile paper for use in thermal facsimile machines, and cut sheet paper for use in copying machines, laser printers, and ink jet printers. TST/Impreso, Inc. has three wholly owned subsidiaries: Big Time Paper, Inc., TST/Impreso of California, Inc., and Texas Stock Tab of West Virginia, Inc. Each subsidiary was formed to support activities of TST/Impreso, Inc. (referred to collectively with its consolidated subsidiaries as " the Company"). In April 1993, the Company emerged from a Chapter 11 bankruptcy proceeding instituted by it in November 1992. The filing was primarily due to the Company's inability to renegotiate its line of credit agreement with its primary lender regarding amounts owed to the lender under the Company's guarantee of indebtedness for a subsidiary operating as a business consumable wholesaler in which the Company had a majority interest. The subsidiary was simultaneously liquidated in a Chapter 7 bankruptcy. 2. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the Interim Unaudited Consolidated Financial Statements of the Company include all adjustments, consisting of any normal recurring adjustments, necessary for a fair presentation of the Company's financial position as of February 28, 1997, and its results of operations for the six months ended February 28, 1997, and February 29, 1996. Results of the Company's operations for the interim period ended February 28, 1997, may not be indicative of results for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the "SEC"). The Interim Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and accompanying notes of the Company and its subsidiaries, included in the Company's Form 10-K (the "Company's Form 10-K") for the fiscal year ended August 31, 1996, File Number 0-26774. Accounting policies used in the preparation of the Interim Unaudited Consolidated Financial Statements are consistent in all material respects with the accounting policies described in the Notes to Consolidated Financial Statements in the Company's Form 10-K. 3. NEW ACCOUNTING PRONOUNCEMENT In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation, " which requires entities to measure compensation costs related to awards of stock-based compensation using either the fair value method or the intrinsic method value method. Under the fair value method, compensation expense is measured at the grant date based on the fair value of the award. Under the intrinsic value method, compensation is equal to the excess, if any, of the quoted market price of the stock at the grant date over the amount the employee must pay to acquire the stock. Entities electing to measure compensation costs using the intrinsic value method must make pro forma disclosures for fiscal years beginning after December 15, 1995, of net income and earnings per share as if the fair value method had been applied. The Company has elected to account for stock-based compensation programs using the intrinsic value 6 8 method consistent with existing accounting policies and, therefore, the standard will have no effect on the consolidated financial statements. The required pro forma disclosures will be adopted by the Company for the Company's fiscal year ending August 31, 1997. 4. UTILIZATION OF IPO PROCEEDS In fiscal year ended August 31, 1996, the Company recorded net proceeds of $5.9 million on the sale of 1,247,730 shares of Common Stock in the Company's Initial Public Offering ("IPO"). The Company utilized $4.9 million to repay indebtedness. In the three months ended February 29, 1996, part of the proceeds were applied to a secured prepetition note, prepaid at a discounted amount, resulting in an extraordinary gain, and the Company applied 65% of the proceeds to reduce the Company's utilization of its revolving line of credit. The remaining proceeds were used for working capital purposes. 5. EXTRAORDINARY ITEM In the quarter ended February 29, 1996, the Company recorded an extraordinary gain totaling $162,049, net of related income tax expense of $83,808. The extraordinary gain resulted from the Company's early extinguishment of a note payable to a financial institution with a face amount of $1,616,883 for a negotiated discounted amount of $1,371,026. The Company utilized proceeds from its initial public offering along with income from operations to extinguish these debts. 6. INVENTORIES Inventories are stated at the lower of cost (principally on a first-in, first-out basis) or market and include material, labor, and factory overhead. Inventory consisted of the following:
February 28, August 31, ----------- ---------- 1997 1996 ----------- ---------- Finished goods $3,788,807 $3,642,869 Raw materials 4,018,307 2,296,347 Supplies 426,418 351,909 Work-in-process 49,983 52,606 ---------- ---------- Total inventories $8,283,515 $6,343,731 ---------- ----------
7. DEBT Debt as of February 28, 1997, and August 31, 1996, is as follows:
February 28, August 31, 1997 1996 ----------- ---------- Postpetition- Note payable to a commercial financial corporation under revolving credit line maturing May 1998, secured by inventory, trade accounts receivable, equipment, and a personal guarantee by the trustee of a trust which is the majority shareholder, interest payable monthly at prime plus 1.00% (9.25% at February 28,1997, and August 31, 1996) $1,644,415 $ 138,391
7 9 Note payable to a commercial financial corporation, payable in monthly installments, security, interest, and maturity date, same as above -- 40,078 Prepetition- Prepetition taxes payable 77,165 77,165 Note payable to a bank, secured by property, payable in monthly installments of $4,815 (including interest at 6%) through May 2000, at which time the remaining balance becomes due and payable 601,265 611,926 Other notes payable, approximately $450,000, are secured by a personal guarantee by the trustee of a trust which is the majority shareholder, and certain property, plant, and equipment, with various maturity dates through 2023, and interest rates ranging from 4% to 10.5% 479,688 500,086 ---------- ---------- Total 2,802,533 1,367,646 Less-Current maturities 1,745,067 275,857 ---------- ---------- $1,057,466 $1,091,789 ---------- ----------
Prepetition amounts listed above represent the renegotiated amounts and terms under the plan of reorganization. The postpetition line of revolving credit is shown above as a current maturity. 8. SUPPLEMENTAL CASH FLOW INFORMATION
Six Months Ended February 28, February 29, --------------------------- 1997 1996 Cash paid during the period for: Interest $ 99,002 $261,570 Income taxes -- 710,364
9. STOCK OPTIONS AND WARRANTS During the quarter ended November 30, 1995, the Company granted 293,800 options to certain employees, an outside Director, and a consultant under its 1995 Stock Option Plan (the "Plan"). These options were granted at an exercise price of $6.00 per share, the fair market value at the date of grant. These options will become exercisable at various dates beginning in April 1996, through April 1999. Thirty-six hundred of those options were forfeited during the 1996 fiscal year, 1,350 of those options were forfeited during the quarter ended November 30,1996, and 450 of those options were forfeited during the quarter ended February 28,1997. On January 2, 1996, the Company elected two new outside Directors to its Board of Directors. In accordance with the Plan, each Director received an automatic grant of an option for 1,000 shares of Common Stock. These options were granted at the fair market value at the date of grant with an exercise price of $6.75 per share and are exercisable in two equal annual installments. 8 10 On October 1, 1996, an officer of the Company was granted an option for 15,000 shares of Common Stock. These options were granted at the fair market value at the date of grant with an exercise price of $5.375 per share and are exercisable in accordance with the Plan beginning on April 1, 1997. On January 29, 1997, the three outside Directors received their automatic grants of an option for 1,000 shares of Common stock . These options were granted at fair market value at the date of grant with an exercise price of $8.375 per share and are exercisable in accordance with the Plan beginning on January 29, 1998. As of February 28,1997, 73,350 of the options granted under the Plan are exercisable. The shares issuable on exercise of these options are restricted from public sale until April 5,1997, by the Underwriters' Agreement. Remaining options available for grant under the Plan, including all forfeited options, total 91,600. In addition to options under the Plan, in October 1995, in connection with the Company's initial public offering ("IPO"), the Company granted an option to purchase up to 147,730 shares of Common Stock (over-allotment option) to its Underwriters at $6.00 per share. The option was exercised in full on November 14, 1995. Also in connection with the Company's IPO, the Company issued warrants to its Underwriters for $.001 per warrant to purchase an aggregate of 110,000 shares of Common Stock. The warrants became exercisable on October 5, 1996, for four years at an exercise price of $7.20 per share. Subsequent to the IPO, the Company issued warrants to two consultants. One warrant for 10,000 shares of Common Stock was granted at an exercise price of $7.20 per share, which was above fair market value on the date of grant, and is exercisable for a period of five years from December 1, 1995 . The other warrant, also for 10,000 shares of Common Stock, was granted at an exercise price of $6.60 per share, which was above fair market value on the date of grant, and became exercisable October 5, 1996, for a period of four years. On April 7, 1997, the Company filed a Registration Statement on Form S-8 with the Securities and Exchange Commission to register the 400,000 shares of Common Stock issuable on exercise of options granted under the Company's 1995 Stock Option Plan. 10. EMPLOYEE 401(K) PLAN In February 1996, the Company implemented an employee 401(k) plan. The Plan is administered by a national brokerage firm and administrative fees associated with the plan are funded by the plan. The Company is matching 5% of up to 10% of the participating employees' deductible contribution to their 401(K) accounts. Contributions by the Company were $3,500 and $9,500 for the six months ended February 28, 1997, and the year ended August 31, 1996, respectively. 11. EARNINGS PER COMMON SHARE Earnings per share is based on the weighted average number of common shares outstanding. Common share equivalents have not been included in the computation of earnings per share as the dilution of these equivalents is not considered material. 9 11 12. SUPPLEMENTAL EARNINGS PER SHARE DATA In October 1995, the Company's registration statement on Form S-1 filed with the SEC was declared effective for the sale of 1,247,730 shares (including over-allotment option shares) at $6.00 per share. The unaudited supplemental earnings per share data has been calculated assuming the IPO occurred as of the beginning of each respective period.
Six Months Ended Six Months Ended February 28, 1997 February 29, 1996 ----------------- ----------------- Supplemental income per share (primary and fully diluted): Income before extraordinary gain $ 0.02 $ 0.31 Extraordinary gain -- 0.06 ------ ------ Net income per common share $ 0.02 $ 0.37 ------ ------ Supplemental weighted average shares outstanding 5,247,730 5,247,730
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations for the Interim Periods Ended February 28,1997 and February 29,1996 Net Sales---Net sales for the three months ended February 28, 1997, decreased $4.7 million, or 34.8%, as compared to the corresponding period of the prior year. Net sales for the six months ended February 28, 1997, decreased $7.8 million, or 30.6% as compared to the corresponding period of the prior year. These decreases were due to decreases in the selling prices of the Company's products combined with depressed market conditions resulting in reduced sales volume, and a reduction in sales volume to a significant customer of the Company. This customer's gross purchases for the three months ended February 28, 1997, was 11.4% of the Company's gross sales as compared to 26.5% of the corresponding period of the prior year, and for the six months ended February 28, 1997, was 9.6%, as compared to 23.7% of the corresponding period of the prior year. Beginning in fiscal 1997, to avoid dependency on the Company as its sole source of supply for the products the Company produces, the significant customer began purchasing products from another vendor. No other single existing or new customer represented a significant portion of the Company's revenues during this time. Gross Profit---Gross profit for the three months ended February 28, 1997, decreased $1.8 million, or 63.9%, as compared to the corresponding period of the prior year. The decreased gross profit was primarily the result of decreases in the selling prices of the Company's products without a corresponding decrease in raw material costs. Gross profit for the six months ended February 28, 1997, decreased $2.9 million, or 56.1%, as compared to the corresponding period of the prior year due to the inability of the Company to pass onto the Company's customers increased material costs resulting from fluctuations in the raw material market. As a result of decreased gross profit and net sales, the Company's gross profit margin decreased to 11.4% for the three month period ended February 28, 1997, as compared to 20.6% of the corresponding period of the prior year, and to 12.8% for the six months ended February 28, 1997, as compared to 20.2% of the corresponding period of the prior year. In the second quarter of 1997, the Company acquired a second sheeter. This sheeter can produce high volume commodity sheets, and can also manufacture certain types of value-added cut sheet. Value-added cut sheets include, but are not limited to, printed, perforated, or punched cut sheets; specially coated papers; and custom sizes and packages. A third sheeter was installed on January 7, 1997. The Company is slowly introducing value-added products into the market place. The Company previously purchased its cut sheet products directly from the paper mills. The addition of sheeting equipment is projected to expand the Company's profit margin on the sale of all types of cut sheets. Management is aggressively pursuing the cut sheet market for future revenue growth. 10 12 Selling, General, and Administrative Expenses---SG&A expenses for the three months ended February 28, 1997, were $1.0 million, or 11.6% of net sales, as compared to $1.1 million, or 8.5% of net sales, for the corresponding period of the prior year. SG&A Expenses for the six months ended February 28, 1997, were $2.1 million, or 12% of net sales, as compared to $2.3 million, or 8.9% for the corresponding period of the prior year. SG&A expenses, although slightly reduced in the 1997 periods, remained approximately constant in dollars, but increased as a percentage of net sales during these periods because of the decreased net sales and the effects of fixed expenses. Interest Expense---Interest expense for the three months ended February 28, 1997, was $ 47,000 as compared to $72,000 for the corresponding period of the prior year. Interest expense for the six months ended February 28, 1997, was $99,000 as compared to $262,000 for the corresponding period of the prior year. The decrease in interest expense for the three and six month periods ended February 28, 1997, as compared to the corresponding periods of the prior year were primarily attributable to a lower interest rate on, and the pay-down of, the Company's revolving line of credit and the early extinguishment of a prepetition note payable . Income before taxes and extraordinary gain---Income before taxes and extraordinary gain for the three months ended February 28, 1997, was $5,000 as compared to $1.5 million for the corresponding period of the prior year, a decrease of $1.5 million or 99.7%. Income before taxes and extraordinary gain for the six months ended February 28, 1997, was $130,000 as compared to $2.6 million for the corresponding period of the prior year, a decrease of $2.4 million, or 94.9%. These decreases were primarily due to a lower sales volume, decreases in the selling prices of the Company's products without a corresponding reduction in raw material costs, and depressed market conditions. Extraordinary Gain---The Company did not record an extraordinary gain for the six months ended February 28, 1997, as compared to an extraordinary gain totalling $295,000, net of related income tax expense of $159,000, for the corresponding period of the prior year. The prior year gain result from the Company's early extinguishment of a prepetition note payable for a discounted amount. Income Taxes---The Company's provision for income taxes was $1,000 for the three months ended February 28, 1997, as compared to $1.0 million for the corresponding period of the prior year. The Company's provision for income taxes was $81,000 for the six months ended February 28, 1997, as compared to $1.6 million for the corresponding period of the prior year. These decreases were primarily due to decreased sales volume and decreased net profit . The effective tax rate for the six month period ended February 28, 1997, was 37.7% as compared to 35.7% for the corresponding period of the prior year. Liquidity and Capital Resources Net cash used in operating activities was $1.4 million for the six months ended February 28, 1997, as compared with $1.6 million provided by operating activities for the corresponding period of the prior year. The decrease in the Company's net cash provided by operations for the six months ended February 28, 1997, primarily related to decreases in net income and increases in raw material inventory. The Company's inventories during the six months ended February 28, 1997, have increased approximately 31% from the fiscal year ended August 31, 1996. A majority of the increase in inventory was raw material purchased for conversion to cut sheets on the Company's sheeters. During the second quarter of fiscal 1997, the sheeters reached full operating capacity. Gross sales of cut sheets for the six month period ended February 28, 1997, increased 37%, as compared to the corresponding period of the prior year. Net cash provided by investing activities was $318,000 for the six months ended February 28, 1997, as compared with $245,000 used in investing activities for the corresponding period of the prior year. The increase in the Company's net cash provided by investing activities primarily related to converting an investment security to a cash equivalent. 11 13 Net cash provided by financing activities was $1.4 million for the six months ended February 28, 1997, as compared with $538,000 used in financing activities for the corresponding period of the prior year. The increase in cash provided by financing activities primarily related to an increase in the Company's borrowings under its revolving line of credit to $1.6 million at February 28, 1997, from $138,000 at August 31, 1996. The Company utilized its revolving line of credit to meet capital expenditures due to the decrease in funds available from net profits. Working capital increased to $10.2 million at February 28, 1997, from $9.8 million at August 31, 1996, an increase of 3.5%, primarily attributable to an increase in inventories. In the fiscal year ended August 31, 1996, the Company recorded net proceeds of $5.9 million on the sale of 1,247,730 shares of Common Stock in the Company's Initial Public Offering ("IPO"). The Company utilized $4.9 million to repay indebtedness. In the three months ended February 29, 1996, part of the proceeds were applied to a secured prepetition note, prepaid at a discounted amount, resulting in an extraordinary gain, and the Company applied 65% of the proceeds to reduce the Company's utilization of it's revolving line of credit. The availability of the revolving credit line was $4,862,000 and $1,157,000 as of August 31, 1996, and August 1995, respectively. The balance of the proceeds were used to increase the Company's working capital. In May 1996, the Company entered into an agreement with a bank for a one year, secured, revolving line of credit, which is secured by, among other things, inventory, trade receivables, equipment and a personal guarantee of Mr. Sorokwasz, Chairman of the Board, President of the Company, and Trustee of the trust which is the majority shareholder of the Company. Available borrowings under this line of credit, which accrues interest at the prime rate of interest plus 1% (9.25% at February 28, 1997), are based upon specified percentages of eligible accounts receivable and inventories. As of February 28, 1997, there was a $3.4 million borrowing capacity remaining under the $5 million revolving line of credit. The revolving credit line which matures in May 1997, has been automatically renewed under identical terms until May 1998. The Company is in final contract negotiations with a national manufacturer of computer hardware to manufacture, market, and distribute products with the national manufacturer's trademark. However, there is no assurance that a final agreement will be arrived at or that the agreement will be signed. If a definitive agreement is signed, the Company expects that it will result in a substantial increase in Company sales, but there can be no assurance that such sales will be profitable. The Company believes that the funds available under the revolving credit line facility, trade credit, and internally generated funds will be sufficient to satisfy the Company's requirements for working capital and capital expenditures for at least the next twelve months. Such belief is based on certain assumptions, including the continuation of current operations of the Company and no extraordinary adverse events, and there can be no assurance that such assumptions are correct. In addition, contingencies or expansion based upon the completion of contract negotiations between the Company and the national manufacturer of computer hardware may arise which may require the Company to obtain additional capital. In fiscal 1998, the Company may pursue an acquisition, or the addition of new manufacturing facilities. If that should occur, the funds required for the potential acquisition or new facilities would be generated through additional security offerings or additional debt. There can be no assurance that any additional financing will be available if needed, or, if available, will be on terms acceptable to the Company. Inventory Management The Company believes that it is necessary to maintain a large inventory of finished goods and raw materials to adequately service its customers. The Company attempts to maintain an minimum of $6.0 million in inventory. With the expansion of the Company's capacity to produce cut sheet products, the Company has increased its inventory. In accordance with the Company's strategic raw material purchasing policies and in 12 14 order to obtain preferential pricing, the Company waives the rights to supplier's inventory protection agreements ( including price protection and inventory return rights). The Company bears the risk of increases in the prices charged by its suppliers and decreases in the prices of raw materials held in its inventory or covered by purchase commitments. If prices for products held in the finished goods inventory of the Company decline or if prices for raw materials required by the Company decline, or if new technology is developed that renders obsolete products distributed by the Company and held in inventory, the Company's business could be materially adversely affected. Seasonality The Company generally experiences a relative slowness in sales during the summer months, which may adversely affect the Company's third and fourth fiscal quarter results in relation to sequential quarter performance. Inflation The Company believes that inflation has not had a significant impact on the Company's operations. Historically, the Company has been successful in transferring to its customers increases in its manufacturing and other costs resulting from inflation by means of price increases. Forward-Looking Statements Management's Discussion and Analysis of Financial Condition and the Results of Operations, and other sections of this Form 10-Q contain "forward-looking statements" about the Company's prospects for the future, such as its ability to generate sufficient working capital, its ability to continue to maintain sales to justify capital expenses, its ability to generate additional sales to meet business expansion, and potential sales to a large potential customer. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including availability of raw materials, availability of thermal facsimile, computer, laser and color ink jet paper, to the cyclical nature of the industry in which the Company operates, the potential of technological changes which would adversely affect the need for the Company's products, price fluctuations which could adversely impact the large inventory required in the Company's business, the ability of the large potential customer to change its plans and decline to execute the contract, and the potential that such contract may not prove profitable. Parties are cautioned not to rely on any such forward-looking beliefs or judgments in making investment decisions. 13 15 PART II: OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K a) NUMBER EXHIBIT 3(a) Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 No. 33-93814) 3(b) By-laws of the Company (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 No. 33-93814) 4 Form of Underwriters' Warrant (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1 No. 33-93814) 10(a) 1995 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-1 No. 33-93814) 10(b) Employment Agreement dated September 28,1995, between the Company and Marshall Sorokwasz (incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-1 No. 33-93814) 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to Registration Statement on Form S-1 No. 33-93814) 27 Financial data schedule b) No reports on Form 8-K were filed during the quarter ended February 28, 1997. 14 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: April 14, 1997 TST/ Impreso, Inc. (Registrant) /s/ Marshall Sorokwasz ------------------------------ Marshall Sorokwasz Chairman of the Board President, Chief Executive Officer, and Director /s/ Susan Atkins ------------------------------ Susan Atkins Vice President and Chief Financial Officer 15 17 EXHIBIT NUMBER ITEM ------- ---- 3(a) Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 No. 33-93814) 3(b) By-laws of the Company (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 No. 33-93814) 4 Form of Underwriters' Warrant (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1 No. 33-93814) 10(a) 1995 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-1 No. 33-93814) 10(b) Employment Agreement dated September 28,1995, between the Company and Marshall Sorokwasz (incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-1 No. 33-93814) 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to Registration Statement on Form S-1 No. 33-93814) 27 Financial data schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS AUG-31-1997 SEP-01-1996 FEB-28-1997 2,658,394 0 3,205,109 130,000 8,283,515 14,309,043 12,867,302 8,584,607 18,836,149 4,138,132 0 0 0 52,587 13,006,527 18,836,149 17,571,892 17,571,892 15,327,695 15,327,695 (90,484) 130,000 99,002 130,044 48,988 81,056 0 0 0 81,056 .02 .02
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