UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
OR
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 000-29883
Impreso, Inc.
| Delaware | 75-2849585 | |
| (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)
(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 þ | No o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.
| Class of Common Stock | Shares outstanding at April 18, 2005 | |
| $0.01 Par Value | 5,278,780 |
IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
February 28, 2005
INDEX
IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
| February 28, | August 31, | |||||||
| 2005 | 2004 | |||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 794,812 | $ | 173,313 | ||||
Trade accounts receivable, net of allowance for doubtful accounts
of $1,028,053 at February 28, 2005 and $1,130,315 as of August 31, 2004 |
9,872,443 | 12,666,433 | ||||||
Receivable, IRS |
1,233,373 | — | ||||||
Inventories, net of reserves |
25,860,388 | 22,643,558 | ||||||
Prepaid expenses and other |
315,377 | 330,039 | ||||||
Assets held for sale |
2,141,289 | — | ||||||
Deferred income tax assets |
675,336 | 736,810 | ||||||
Total current assets |
40,893,018 | 36,550,153 | ||||||
Property, plant and equipment, at cost |
26,982,968 | 29,417,303 | ||||||
Less-Accumulated depreciation |
(14,033,713 | ) | (14,295,714 | ) | ||||
Net property, plant and equipment |
12,949,255 | 15,121,589 | ||||||
Noncurrent assets
|
||||||||
Other assets |
130,252 | 81,778 | ||||||
Deferred income tax assets |
278,878 | 318,718 | ||||||
Total noncurrent assets |
409,130 | 400,496 | ||||||
Total assets |
$ | 54,251,403 | $ | 52,072,238 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements
1
IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS’ EQUITY
(Unaudited)
| February 28, | August 31, | |||||||
| 2005 | 2004 | |||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 11,213,851 | $ | 12,711,758 | ||||
Accrued liabilities |
995,773 | 987,921 | ||||||
Accrued commissions |
2,123,593 | 1,863,698 | ||||||
Current maturities of long-term debt |
1,342,783 | 1,407,070 | ||||||
Line of credit |
10,679,564 | 6,851,479 | ||||||
Current maturities of prepetition debt |
8,534 | 8,384 | ||||||
Total current liabilities |
26,364,098 | 23,830,310 | ||||||
Deferred income tax liability |
1,168,168 | 998,730 | ||||||
Deferred gain |
697,197 | 796,796 | ||||||
Long-term debt, net of current maturities |
9,720,151 | 8,171,228 | ||||||
Long-term portion of prepetition debt, net of current maturities |
216,359 | 220,689 | ||||||
Total liabilities |
38,165,973 | 34,017,753 | ||||||
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; |
52,928 | 52,928 | ||||||
5,292,780 issued and 5,278,780 outstanding
|
||||||||
Treasury stock (14,000 shares, at cost) |
(38,892 | ) | (38,892 | ) | ||||
Additional paid-in capital |
6,353,656 | 6,353,656 | ||||||
Retained earnings |
9,717,738 | 11,686,793 | ||||||
Total stockholders’ equity |
16,085,430 | 18,054,485 | ||||||
Total liabilities and stockholders’ equity |
$ | 54,251,403 | $ | 52,072,238 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements
2
IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | Six Months Ended | |||||||||||||||
| February 28, | February 29, | February 28, | February 29, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Net sales |
$ | 18,629,137 | $ | 25,762,472 | $ | 38,605,771 | $ | 52,489,187 | ||||||||
Cost of sales |
18,072,991 | 22,754,614 | 37,069,767 | 46,100,568 | ||||||||||||
Gross profit |
556,146 | 3,007,858 | 1,536,004 | 6,388,619 | ||||||||||||
Gain on sale of assets |
(42,685 | ) | — | (101,909 | ) | — | ||||||||||
Selling, General and administrative expenses |
2,092,286 | 2,265,260 | 4,378,136 | 4,547,254 | ||||||||||||
Operating (loss) Income |
(1,493,455 | ) | 742,598 | (2,740,223 | ) | 1,841,365 | ||||||||||
Other expenses (income): |
||||||||||||||||
Interest expense |
339,332 | 295,083 | 578,262 | 632,097 | ||||||||||||
Embezzlement recovery |
(37,527 | ) | — | (290,840 | ) | — | ||||||||||
Other income, net |
(28,749 | ) | 715 | (107,969 | ) | (6,154 | ) | |||||||||
Total other expense |
273,056 | 295,798 | 179,453 | 625,943 | ||||||||||||
(Loss) income before income tax expense |
(1,766,511 | ) | 446,800 | (2,919,676 | ) | 1,215,422 | ||||||||||
Income tax (benefit) expense : |
||||||||||||||||
Current |
(1,227,623 | ) | 224,522 | (1,221,373 | ) | 540,245 | ||||||||||
Deferred |
670,130 | (39,962 | ) | 270,752 | (69,279 | ) | ||||||||||
Total income tax (benefit) expense |
(557,493 | ) | 184,560 | (950,621 | ) | 470,966 | ||||||||||
Net (loss) income |
$ | (1,209,018 | ) | $ | 262,240 | (1,969,055 | ) | $ | 744,456 | |||||||
Net (loss) income per share (basic and diluted) |
$ | (0.23 | ) | $ | 0.05 | $ | (0.37 | ) | $ | 0.14 | ||||||
Weighted average shares outstanding |
5,278,780 | 5,278,780 | 5,278,780 | 5,278,780 | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended | ||||||||
| February 28, | February 29, | |||||||
| 2005 | 2004 | |||||||
Cash Flows From Operating Activities: |
||||||||
Net (loss) income |
$ | (1,969,054 | ) | $ | 744,456 | |||
Adjustments to reconcile net (loss) income to net
cash (used in ) provided by operating activities-
|
||||||||
Depreciation and amortization |
723,631 | 726,351 | ||||||
(Decrease) increase in Provision for Losses of Receivables |
(102,262 | ) | (138,674 | ) | ||||
Decrease in Provision for Losses of Inventory |
(987 | ) | (11,438 | ) | ||||
Gain on sale of property, plant and equipment |
(101,909 | ) | — | |||||
Decrease (Increase) in Deferred income taxes |
270,752 | (138,557 | ) | |||||
Decrease in trade accounts receivable |
2,896,252 | 634,648 | ||||||
Increase in receivable from IRS |
(1,233,373 | ) | — | |||||
(Increase) Decrease in inventory |
(3,215,843 | ) | 6,900,392 | |||||
Increase in prepaid expenses and other |
(33,812 | ) | (157,667 | ) | ||||
(Decrease) Increase in accounts payable |
(1,497,907 | ) | 535,262 | |||||
Increase in accrued liabilities |
267,746 | 514,732 | ||||||
Net cash (used in) provided by operating activities |
(3,996,766 | ) | 9,609,505 | |||||
Cash Flows From Investing Activities: |
||||||||
Additions to property, plant and equipment |
(731,276 | ) | (94,973 | ) | ||||
Proceeds from sale of property, plant and equipment |
41,000 | 3,328 | ||||||
Net cash used in investing activities |
(690,276 | ) | (91,645 | ) | ||||
Cash Flows From Financing Activities: |
||||||||
Net borrowings (repayments) on line of credit |
3,828,085 | (8,575,751 | ) | |||||
Principal payments on prepetition debt |
(4,180 | ) | (4,014 | ) | ||||
Principal borrowings (payments) on post-petition debt |
1,484,636 | (439,705 | ) | |||||
Net cash provided by (used in) financing activities |
5,308,541 | (9,019,470 | ) | |||||
Net Increase in cash and cash equivalents |
621,499 | 498,389 | ||||||
Cash and cash equivalents, beginning of period |
173,313 | 95,129 | ||||||
Cash and cash equivalents, end of period |
$ | 794,812 | $ | 593,518 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
IMPRESO, INC. AND SUBSIDIARIES
1. ORGANIZATION AND NATURE OF BUSINESS
Impreso, Inc., a Delaware corporation (referred to collectively with its subsidiaries as the “Company”), is the parent holding company of TST/Impreso, Inc. (“TST”), a manufacturer and distributor to dealers and other resellers of paper and film products for commercial and home use in domestic and international markets, Hotsheet.com, Inc., the owner and operator of the Hotsheet.com web portal, and Alexa Springs, Inc. a natural spring water bottler. Currently, TST has one wholly owned subsidiary, TST/Impreso of California, Inc., which was formed to support the activities of the paper converting segment of the Company’s business.
2. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited Interim Condensed 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 February 28, 2005, and its results of operations for the three and six months ended February 28, 2005 and February 29, 2004. Results of the Company’s operations for the interim period ended February 28, 2005, 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 unaudited Interim Condensed 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 “Form 10-K”), for the year ended August 31, 2004 (“Fiscal 2004”). Accounting policies used in the preparation of the unaudited Interim Condensed 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 PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment to SFAS No. 123”. This statement provides alternative methods of transition for companies that elect to voluntarily change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.
5
In January 2003, the FASB issued Interpretation 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” an Interpretation of ARB 51, which expands upon and strengthens existing accounting guidance concerning when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity (“VIE”) does not share economic risk and reward through typical equity ownership arrangements; instead, contractual or other relationships distribute economic risks and rewards among equity holders and other parties. Once an entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate it. FIN 46 also requires disclosures about VIEs that the Company is not required to consolidate but in which it has a significant variable interest. The adoption of this statement did not have a material impact on the Company’s consolidated financial statement.
In April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this statement did not have any impact on the Company’s consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures in its balance sheet certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, a financial instrument that embodies an obligation for the issuer is required to be classified as a liability (or an asset in some circumstances). SFAS 150 is effective for financial statements entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement did not have any impact on the Company’s consolidated financial position and results of operations.
In November 2004, FASB issued SFAS No, 151 “Inventory Costs, an Amendment of ARB No.43 Chapter 4” (“FAS 151”). FAS 151 requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. FAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005, The Company will adopt this standard beginning the first quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its financial statements as such costs have historically been expensed as incurred.
In December 2004, the Financial Account Standards Board (“FASB”) issued SFAS No, 153, “Exchanges of Non-monetary Assets — an amendment of APB Opinion No. 29” which addresses the measurement of exchanges of non-monetary assets and eliminates the exception from fair value accounting for non-monetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a non-monetary exchange has commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is effective for the Company
6
beginning the first quarter of fiscal year 2006 and is not expected to have a significant impact on the Company’s financial statements.
In December 2004, FASB issued SFAS No., 123 (Revised 2004) “Share-Based Payment: an Amendment of FASB Statements No. 123 and 95” (“FAS l23R”).. FAS l23R sets accounting requirements for “share-based” compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation.. FAS l23R is applicable for all interim and fiscal periods beginning after June 15, 2005. This statement is effective for the Company beginning the first quarter of fiscal year 2006 and is not expected to have a significant impact on its financial statements.
4. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year presentation.
5. 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:
| February 28, 2005 | August 31, 2004 | |||||||
Finished goods |
$ | 12,188,912 | $ | 11,920,405 | ||||
Raw materials |
12,723,721 | 9,866,736 | ||||||
Supplies |
1,165,779 | 1,047,748 | ||||||
Work-in-process |
89,716 | 117,396 | ||||||
Allowance for obsolete inventory |
(307,740 | ) | (308,727 | ) | ||||
Total |
$ | 25,860,388 | $ | 22,643,558 | ||||
6. ACCOUNTING FOR LONG-LIVED ASSETS
In March 2004, the Company began a lease with an unrelated party for a 414,000 square foot warehouse and manufacturing facility in Chambersburg, Pennsylvania to consolidate east coast operations. The Company exited and no longer utilizes its buildings located in Kearneysville, West Virginia and Greencastle, Pennsylvania, and is attempting to locate buyers for these facilities.
For the three and six month periods ended February 28, 2005, the Company ceased depreciating the buildings and building improvements and has reclassified the net book value of the land, building and building improvements in the amount of $2.1 million to assets held for sale. The Company believes both properties will be sold within the next twelve months.
The Company has determined the plan of sale criteria in the statement of Financial Accounting
7
Standards No. 144, ‘Accounting for the Impairment or Disposal of Long-Lived Assets’ has been met. Accordingly, the assets held for sale are classified as current and are carried at the lower of their carrying or fair value, less costs to sell. There were no write downs of inventory as a result of this valuation.
7. LONG-TERM DEBT AND LINE OF CREDIT:
| February 28, | August 31, | |||||||
| 2005 | 2004 | |||||||
The following is a summary of long-term debt and line of credit: |
||||||||
Line of Credit with a commercial financial corporation under
revolving credit line, maturing November 2005, secured by
inventories, trade accounts receivable, equipment, and goodwill
associated with TST’s trademark “IMPRESO” (no value on
financial statements), interest payable monthly at prime plus
the applicable prime rate margin (5.25% and 4.25%,
respectively, as of February 28, 2005 and August 31, 2004). |
$ | 10,679,564 | $ | 6,851,479 | ||||
Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$4,457 (including interest at 8.50%), maturing November 2008. |
203,257 | 222,039 | ||||||
Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$10,843 (including interest at 8.50%), maturing July 2010.
Revolving lender’s blanket lien subordinated to note’s
collateral. |
555,186 | 599,536 | ||||||
Note payable to a commercial financial corporation, secured by
real property, payable in monthly installments of $2,834
(including interest at 5.5%), maturing October 2010. |
163,708 | 175,978 | ||||||
Notes payable to various commercial financial corporations,
secured by equipment, interest rates ranging from 0 % to 10.5
%, maturing at various dates from May 2005 through July 2008. |
140,907 | 140,069 | ||||||
Notes payable to a commercial financial corporation, secured by
real property and a personal guarantee by the trustee of a
trust which is a principal stockholder of the Company, payable
in monthly installments of $21,407 (including interest at 8%),
maturing March 2011. |
1,892,865 | 1,944,381 | ||||||
Acquisition note payable, unsecured, payable in quarterly
installments of $15,000 (including interest at 8%), maturing
April 2006. (See Form 10-K, Second Paragraph, Footnote 8) |
225,000 | 225,000 | ||||||
Acquisition note payable, secured by equipment, payable in
monthly installments of $16,024, no interest, matured May 2003.
(See Form 10-K, Second Paragraph, Footnote 8) |
352,145 | 352,145 | ||||||
8
| February 28, | August 31, | |||||||
| 2005 | 2004 | |||||||
Note payable to a commercial financial corporation, secured by
real property and a personal guarantee by the trustee of a
trust which is a principal stockholder of the Company, payable
in monthly installments of $22,827 (including a fixed schedule
for interest, 6% at August 31, 2004). On September 22, 2004,
this note was combined with a construction note. The note
executed September 22, 2004, relinquished the personal
guarantee, is payable in monthly installments of $12,377.85, including interest at prime plus 1.125% with a cap of 7.5%
(6.375% at February 28, 2005) maturing September 2009. |
4,406,515 | 3,085,043 | ||||||
Note payable to a commercial financial corporation, secured by
equipment, payable in monthly installments of $17,857,
including interest at a variable rate equal to 30 day LIBOR
plus 350 basis points, (5.51% at February 28, 2005 and 4.5% at
August 31, 2004), maturing February 2009. |
875,000 | 982,143 | ||||||
Acquisition notes payable, unsecured, payable in monthly
installments of $16,666, maturing February 2007. |
387,810 | 476,905 | ||||||
Construction note payable to a commercial financial
corporation, secured by real property, payable in monthly
installments of interest only, at 6 %, consolidated into new
loan executed September 22, 2004, combined with balance of
existing mortgage on the real property. Interest on the new
combined loan will be prime plus 1.125%, capped at 7.5%,
maturing 5 years from date of execution. |
-0- | 1,375,059 | ||||||
Financing lease payable to a commercial financial corporation,
secured by equipment, payable in monthly installments of
$28,320, including interest at 8.51%, maturing October 2011. |
1,860,541 | -0- | ||||||
Prepetition- |
||||||||
Note payable to a commercial financial corporation, secured by
real property and equipment and a personal guarantee by the
trustee of a trust which is a principal stockholder of the
Company, payable in monthly installments of $1,461 (including
interest at 4%), maturing April 2008. |
224,893 | 229,073 | ||||||
Total |
21,967,391 | 16,658,850 | ||||||
Less Current Maturities |
(12,030,881 | ) | (8,266,933 | ) | ||||
Long-Term Debt |
$ | 9,936,510 | $ | 8,391,917 | ||||
Prepetition amount listed above represents the renegotiated amounts and terms under the 1993 plan of reorganization.
9
In December 2004, TST amended its revolving line of credit to increase the line from $10 million to $15 million. The amended revolving credit line is limited to the lesser of $15 million or a percentage of eligible trade accounts receivable and inventories, as defined. The remaining availability under the revolving credit line was $3.1 million as of February 28, 2005.
The line of credit, as amended, has a restrictive covenant requiring the maintenance of a minimum tangible net worth, as defined in the agreement. One of the notes payable contains restrictive covenants on current and debt to worth ratio, and the payment of cash dividends. As of February 28, 2005, the Company was in compliance with all covenants.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months ended |
February 28, 2005 | February 29, 2004 | ||||||||
Cash paid during the period for: |
||||||||||
Interest |
339,332 | $ | 295,083 | |||||||
Income taxes |
-0- | $ | 499,300 | |||||||
Six Months ended |
February 28, 2005 | February 29, 2004 |
||||||||
Cash paid during the period for: |
||||||||||
Interest |
578,262 | $ | 632,097 | |||||||
Income taxes |
95,000 | $ | 507,569 | |||||||
During the three and six month periods ended February 28, 2005, the Company reclassified $2,141,289 of property, plant and equipment to assets held for sale, and received payment applied directly to the line of credit of $1,625,633 relating to the financing of various water bottling equipment.
9. STOCK OPTIONS
The Company accounts for the Incentive Stock Option Plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to E