Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended August 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from________ to ___________
Commission File Number 000-29883
----------------------------------------------------
IMPRESO.COM, INC.
(Exact name of registrant as specified in its charter)
----------------------------------------------------
Delaware 75-2849585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
652 Southwestern Blvd., Coppell, Texas 75019
(Address of principal executive offices) (Zip code)
(972) 462-0100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
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 by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of October 17, 2000, based upon the closing sale price of the
Common Stock as reported on the Nasdaq National Market, was approximately
$5,314,687.
There were 5,292,780 shares of the registrant's Common Stock outstanding as of
November 9, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this Form 10-K
portions of its definitive Proxy Statement for its Annual Meeting of
Shareholders to be filed within 120 days after the end of the fiscal year (the
"Proxy Statement"). Except with respect to information specifically
incorporated by reference into this Form 10-K, the Proxy Statement is not
deemed to be filed as a part hereof.
2
PART 1
ITEM 1. BUSINESS
GENERAL
Impreso.com, Inc. is the holding company of TST/Impreso, Inc. ("TST"), a
manufacturer and distributor to dealers and other resellers of various paper
and film products for commercial and home use in domestic and international
markets, and Hotsheet.com, Inc., the owner of Hotsheet.com(R), an online web
reference directory. On March 7, 2000, the shareholders of TST voted to approve
the transaction which resulted in our parent holding company structure.
The primary operating company, TST, was founded in 1976. TST operates in the
hard copy supply market, which encompasses those products used with a hard copy
output or "imaging" device. Approximately 98% of TST's total output is
initially sold domestically. Independent resellers purchase and may further
distribute the products internationally. Through its three manufacturing
facilities and 49 public warehouse locations throughout the United States and
in Quebec, Canada, TST manufactures and distributes its products under its own
IMPRESO(R) label, generic labels and private labels. In April 1997, TST entered
into a non-exclusive Trademark Licensing Agreement with International Business
Machines Corporation ("IBM") for the manufacture and distribution of a selected
line of paper products. In 1999, this agreement was extended and new products
were added.
The hard copy imaging business is a very competitive industry. Advances in
hardware and imaging material technology have accelerated business and public
consumption of new types of products and are changing the industry's customers,
products and channels of distribution. TST has strategically located its
distribution points so that it can deliver its products to customers in most
major cities in the United States within 24 hours. TST has approximately 2,600
customers, ranging in size from small business forms dealers to large office
product wholesalers with multiple offices and branches. An increasing segment
of our customer base has been large and medium size mass merchants, including
computer and office superstores. Our primary method of generating sales
contacts is through our own sales force, manufacturers' sales representatives,
extensive marketing programs, referrals and reputation.
Our other subsidiary, Hotsheet.com, Inc., owns and operates the Hotsheet.com
web portal. Hotsheet(R) is an internet website directory, or portal,
specializing in listing popular and useful web destinations utilized by a wide
general audience. The 12 primary categories provide over 500 links to premier
sites. Hotsheet is unique due to the single-page presentation of the main
directory.
Each Hotsheet category can also be accessed through an individual page that
provides additional functions such as expanded search capabilities and relevant
news stories. For example: the "Travel" page contains the entire category from
the main directory, but also includes an air and hotel booking form; the "Home
and Health" page has recent health news and a search for prescription drug
information; "Search Portal" provides direct input into several leading search
engines, along with links to nearly all of the major web portals and search
services.
Additional services provided by Hotsheet.com include: My Hotsheet, a unique
method of bookmark management that lets users create their own personalized
page of categorized favorite links; Hotsheet Super Search, a "meta-search" that
combines results from multiple web search engines and ranks them by relevance;
and Shopsheet(R), an easy to use shopping directory focusing on retail oriented
web merchants, of which 96% of the sites listed are links which have a
compensation arrangement with Hotsheet.com, Inc.
1
3
TST'S PRODUCTS
The product line during fiscal 2000 consisted of the following:
o Continuous Computer Stock Business Forms. We maintain a wide variety of
standard continuous computer stock business forms in various types of
papers, formats for readability and contrast, and basis weights. Upon
request, we occasionally produce customized forms for larger customers.
o Thermal Facsimile Paper. Our thermal facsimile papers are suitable for
use with all original equipment manufacturers' (OEM's) machines
currently on the market and are warranted against damage that the paper
may cause to a customer's thermal facsimile machine.
o Cut Sheet Paper for use in Laser Printers, Copying Machines and Plain
Paper Facsimile Machines. We convert cut sheet products, including
IMPRESO Lazer Cut Sheets(R).
o Cut Sheet Paper for use in Ink Jet Printers. We manufacture two types of
ink jet paper, coated and un-coated. Coated ink jet paper, in both
glossy and matte, is designed for superior high resolution color
graphics and photographic reproductions. Uncoated ink jet paper is
primarily used for traditional monochrome applications.
o Digital Photo Ink Jet Paper. Used for printing images from digital
cameras, photo CD's, the Internet, or desktop scanners.
o Gloss Coated Ink Jet Paper. Gloss coated on one side for brilliant,
high-contrast color images with photographic detail and matte on the
reverse side for text and graphics.
o Gloss Opaque Ink Jet Film. A stable and long-lasting film for printing
any ink-generated image. Its high gloss finish prints brilliant color
images and its matte side prints text and graphics.
o Ink Jet Coated Canvas. A textured product which creates the illusion of
a painted surface.
o Transparency Film for Ink Jet Printers. Clear film specially coated for
smudge/bleed-free color or black ink jet imaging.
o Transparency Film for Copier and Laser Printers. Overhead transparencies
can be created using a plain paper copier and this film.
o Transparency Film for Color Laser Printers. Designed specially for color
laser applications; the unique coating controls absorption of color,
creating high quality full color overhead transparencies.
o T-Shirt Transfers. A computer and ink jet printer can create
personalized designs for applications on various cotton materials.
o Point of Sale and Cash Register Machine Rolls. Available in both thermal
and plain paper.
o Fine Cotton Business Stationery Line. Fine cotton business stationery
for sale at the retail level.
o High Speed Laser Roll Paper. High speed laser roll paper is specifically
engineered for high speed roll fed
2
4
printing systems, such as IBM's Infoprint family of continuous-feed
printing systems like the Infoprint 3000 and Infoprint 4000. In
addition, this paper can be used in Xerox or OCE systems. These rolls
are used by companies, such as investment banking institutions and
publishing companies, for variable data output applications, such as
customized statements and book publishing. The advantages of using 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.
o Wide Format Engineering Rolls. Available in three different grades of
paper, bond, vellum and translucent bond, and in a variety of widths and
lengths. These products are used with wide format printing and copying
equipment, such as those used by architectural and engineering firms for
design plans and renderings. The introduction of engineering rolls
represents our entry into the rapidly growing wide format printing
market. This product category also opened a new channel of distribution
through computer-aided design (CAD) supply dealers.
o Wide Format Ink Jet Media. Available in a wide variety of coated papers
and films used for full color graphic signage and display.
o Processed Laser Cut Sheets. Laser Cut Sheets are micro-perforated and/or
pre-punched cut sheets used in copiers, laser printers and ink jet
printers for applications such as return/reply promotional materials,
billing and remittance statements, or coupons. Users can keep printing
projects in-house by eliminating the use of outside sources for custom
forms.
TST'S NEW PRODUCTS
o Ink Jet Greeting Cards. Pre-scored white card stock in matte and glossy
finishes, packaged with matching envelopes.
o Ink Jet Bumper Stickers. Coated vinyl bumper sticker material for use in
ink jet printers to create personalized bumper stickers.
o Photo Quality Business Card Size Magnets. Photo quality, magnet stock is
die cut into business card size pieces. Excellent for producing business
card size magnets, magnets with important phone numbers and photo
magnets. Magnets can be affixed to all metal surfaces including
refrigerators, lockers, etc.
TST'S TRADEMARK LICENSE
In April 1997, TST entered into a non-exclusive Trademark Licensing Agreement
with IBM. Under this agreement TST manufactures and distributes a selected line
of paper products within the United States, Canada and Mexico under the IBM
brand name. In March 1999, TST extended the agreement with IBM from a four-year
contract with two one-year automatic renewals, to a six-year contract with two
one-year automatic renewals. The amended agreement also expanded the list of
authorized products. Management believes that brand name identification is an
effective tool for penetration of the paper industries market share and
maintenance of profit margins. TST began shipping IBM branded products in
fiscal 1998 under the IBM brand name. In fiscal 2000, TST introduced three
products under the IBM brand name: wide format engineering rolls, wide format
ink jet media and processed laser cut sheets. In the year ending August 31,
2001, three new products are scheduled for introduction: ink jet greeting
cards, ink jet bumper stickers and business card size magnets. TST has been
actively soliciting distributors, dealers and retail accounts into the IBM
program and has established a solid base for creating additional sales
opportunities to existing accounts, as well as initial sales to new customers
who are now purchasing from us as a direct result of their participation in the
IBM branded paper program.
3
5
TST'S MARKETING AND DISTRIBUTION
TST markets its products to approximately 2,600 customers through its own sales
force and established manufacturers' representatives. TST's targeted customers
are business consumable and office machine dealers and large and medium mass
merchants, including computer and office superstores. We are continually
seeking to diversify its customer base and distribution channels. The
incorporation of non-traditional but related product categories into our
expanding product line may facilitate our access to different distribution
channels. In fiscal 2000, we began supplying through a new channel of
distribution, computer aided design ("CAD") supply dealers with the
introduction of wide format ink jet media.
TST has 52 distribution points (49 public warehouses and three plants), which
enable it to deliver products to most major cities in the United States within
24 hours. TST's primary method of generating revenue is through its own sales
force. The members of this sales force generally seek business within specific
geographic territories. Manufacturers' representatives serve as an important
supplementary source of sales and marketing. Their territories are identified
by specific accounts or prospects, primarily those of a retail nature.
TST sells to the following types of customers:
o Business Forms Dealers. Business form dealers are typically businesses
which primarily buy and resell various types of business forms.
o Wholesale Stationers. Wholesale stationers are businesses which supply a
large variety of office products to office product dealers. The
wholesale stationers do not sell directly to the end user.
o Office Products Dealers. Office products dealers are businesses which
generally purchase a majority of their products from the wholesale
stationers, but often negotiate directly with manufacturers such as us.
o Paper Merchants. Paper merchants sell all types of papers to printers
and dealers and directly to end users.
o Consumer Electronics Stores. Consumer electronic stores sell retail to
the end user in a broad spectrum electronics environment.
o Mass Merchants. Mass merchants are retail sections of department,
grocery or drug stores that sell computer, copier and facsimile related
supplies.
o Computer Superstores. Computer superstores sell computer products,
accessories and consumables at retail.
o Wholesale Clubs/Office Superstores. Wholesale clubs/office superstores
comprise the fastest growing segment of the office products market. They
sell large quantities of inventory at near wholesale prices to end users
and dealers. These stores generally do not provide the credit, delivery
and other types of services support to the extent that wholesale
stationers provide their customers.
o Original Equipment Manufacturers (OEMs). These manufacturers make the
business machines in which paper products are used. Many OEMs market
their own privately labeled consumables as secondary sales for their
business machines, such as copiers, printers and facsimile machines.
4
6
o Catalog Sales. Catalog companies publish their own catalogs and send
them to customers, who then order merchandise by telephone, facsimile,
or e-mail and have it delivered.
o Buying Groups. These are groups of dealers, ranging from ten to 400
members, that combine their buying power to receive, among other things,
volume discount pricing and rebate incentives from manufacturers.
o Computer Aided Design (CAD) Supply Dealers. These dealers typically sell
wide format supplies and papers to architects and engineers.
o Contract Stationers. Companies which offer a complete catalog of office
and business supplies generally to large corporations. Various types of
products a business uses are bundled and sold under contract.
o Computer Supply Wholesalers. Businesses which offer a broad line of
computer supplies and hardware to resellers.
Although TST has specialized in select markets and has emphasized service and
long-term relationships to meet customer needs more effectively, there are no
long-term contractual relationships between it and any of its customers. Two
customers, Staples, Inc. ("Staples") and Xpedx, accounted for more than 10% of
TST's sales in fiscal 2000. Staples also accounted for more than 10% of TST's
sales in fiscal 1998 and 1999. There can be no assurance that purchases by
these customers will remain at significant levels. TST may in the future be
dependent on Staples, Xpedx, or other significant customers. The loss of
Staples or any other significant customer could materially adversely affect our
financial position, results of operations and cash flows.
INVENTORY MANAGEMENT; RAW MATERIALS OF TST
We believe that it is necessary for TST to maintain a large inventory of
finished goods and raw materials to adequately service its customers. Because
TST has in the past and is currently expanding the manufacturing and
distribution of new brands and types of products, its raw material and finished
goods inventory requirements have increased over prior years. Therefore, TST
has substantially increased its inventory levels. In addition, increasing
international sourcing of raw materials has impacted delivery cycles resulting
in TST's expanding inventory to accommodate less frequent, larger shipments.
TST bears the risk of increases in the prices charged by its suppliers and
decreases in the prices of raw materials held in its inventory. If prices for
products held in its finished goods inventory decline or if prices for raw
materials required by it increase, or if new technology is developed that
renders obsolete products distributed and held in inventory by TST, the
Company's business could be materially adversely affected.
The price of raw materials that TST utilizes substantially increased in
September 1999 and March 2000. A proposed October 2000, increase was not
successfully implemented by suppliers. Management believes that raw material
paper costs will increase again in the Company's 2001 fiscal year. Market
indications are that the supply of paper raw material utilized by TST will
tighten further due to mill consolidation and the permanent shutdown of
suppliers' mills.
TST purchases raw paper, coated thermal facsimile paper, coated technical
paper, carbon and carbonless paper, consisting of a wide variety of weights,
widths, colors, sizes and qualities, transparency film, packaging and other
supplies in the open market from a number of different companies around the
world. We believe that TST has adequate sources of raw material supplies exist
to meet the requirements of its business. Raw materials represented 60% of
TST's total inventory at August 31, 2000. We believe that TST has a good
relationship with all of its current suppliers.
5
7
MARKET CONDITIONS OF TST
Due to actual and proposed price increases by our suppliers, TST implemented
price increases on finished goods in November 1999, March and late October
2000. The finished goods price increase in November 1999, March 2000 and
October 2000 were successfully implemented on to a majority of TST's customers.
However, resistance by customers to future finished goods price increases could
create downward pressure on finished goods selling prices, which could result
in lower net sales and profit margins for us. If selling prices for products
manufactured by us cannot increase in relationship to raw material cost
increases, or if prices for products manufactured by us decline as a result of
market pressures, our results of operations could be materially adversely
affected. In addition, the increased growth of discount retailers, such as
office superstores, and the increase of sales to those retailers as a
percentage of our total sales could also contribute to a reduction in our
profit margin, as price wars among them adversely impact their suppliers.
SEASONALITY
TST may be subject to certain seasonal fluctuations in that orders for products
may decline over the summer months. However, we do not believe that such
fluctuations have a material adverse effect on our results of operations.
Hotsheet.com revenues are partially generated by retail sales which are
typically stronger during the Christmas holiday season.
TST'S BACKLOG
The dollar value of TST's order backlog as of August 31, 2000 and 1999, was
approximately $2.6 million and $1.4 million, respectively. TST's ability to
fill orders is directly impacted by the general cyclical pattern of the paper
industry and its ability to purchase the raw materials and finished goods
necessary to fill customer orders. The increase in backlog is related to TST's
increased net sales.
TST'S COMPETITION
TST competes with a number of other business organizations within the paper
industry, some of which have substantially greater financial, human and other
resources than us. TST currently competes principally with manufacturers like
it that distribute their products through dealers, resellers and/or retailers
and, to a lesser extent, manufacturers who distribute their own products
directly to end-users. Weak industry conditions in the past few years have
caused the major direct-selling companies, which are much larger than TST, to
sell direct and to dealers. In some cases, this has led to TST's customers
reducing their selling prices to compete with these dealers. This has also
caused increased competition among companies selling products through dealers.
In addition, vertical consolidation among entities in the paper industry has
created tougher conditions for TST, because certain of TST's suppliers have
subsidiaries that compete with TST and these suppliers generally support the
efforts of their subsidiaries. Finally, in the changing environment of the hard
copy supply industry, advancing technology has contributed to the competition
as companies must commit resources to obtain new equipment in order to convert
the evolving types of business consumables required by the advancement of
technology and to expand facilities to house the increasing number of types of
products available and for just-in-time inventory purchasing practices of
customers.
TST has remained competitive by incorporating the manufacture and distribution
of technical and high recognition branded paper products into its line. The
addition of technical products into our line has positioned
6
8
TST as a supplier of business consumables at the initial growth stages of the
technology's introduction into the market and, therefore, at the greatest
opportunity for strong profit margins and growth in unit sales. Branded
products benefit from brand loyalty and name recognition. Since TST began the
manufacture and distribution of technical and trademark licensed branded
products, and has penetrated new distribution channels with its expanding
product lines, management believes that in the future the companies TST will
compete with will change as the consolidation within the paper industry causes
competitors to branch into other categories of products that may not compete
with the lines we offer.
Continuing consolidation within the paper industry is creating opportunities
for TST to expand its customer base and increase its market share. The
completion of the liquidation of a major Midwestern competitor of TST in fiscal
2000 resulted in a substantial number of new customers which were captured
without compromise to the Company's profit margins or substantial increases in
selling, general and administrative expenses as a percent of net sales. Another
liquidation of a competitor was initiated in fiscal 2001, and management
believes the impact on the market will also benefit TST.
We believe that TST effectively competes on the basis of the following: its
nationwide distribution network, which enables products to be delivered to its
customers in most major cities in the United States within 24 hours; its larger
number of inventory items providing customers cost-effective, efficient
purchasing and volume discounts; and by providing high-quality products and
customer-oriented services.
TRADEMARKS
TST uses the trademark IMPRESO, a Spanish word meaning "printed matter", on
certain products it manufactures and distributes. The trademark is registered
in the United States, which registration, renewed in August 1995, is effective
until August 2009. TST has also registered IMPRESO as a service mark, which
registration, renewed in May 2000, is effective until May 2010. The IMPRESO
trademark is also registered in Canada and Great Britain. These foreign
registrations are subject to renewal in July 2007 and October 2007,
respectively. The Impreso trademark is also registered in France, Benelux and
Italy. The individual foreign registrations have expired, but the registration
renewal rights are preserved under the new European Community trademark
regulations. An application to register the IMPRESO trademark under the new
European Community Trademark regulations was filed July 19, 2000. The European
Community Trademark application registers the mark in Austria, Belgium,
Germany, Denmark, Spain, Finland, France, UK, Greece, Ireland, Italy,
Luxembourg, Netherlands, Portugal and Sweden. The European Community Trademark
application preserves our right to proceed upon individual renewal in each
country if the European Community Trademark application is rejected. Management
believes that the IMPRESO trademark has significant name recognition and is
important in marketing and achieving visibility of TST's products. The goodwill
value associated with the name IMPRESO has been pledged as an asset to TST's
current primary secured lender under TST's revolving line of credit.
TST also has a trademark registration in the United States for "Lazer Cut
Sheets" and "Lazer Bond(R)" which registrations, subject to renewal, are
effective until May 2007. Each of the Lazer Cut Sheet and Lazer Bond trademarks
are applied only to one specific product that TST manufactures.
In fiscal 1998, a United States service mark was obtained on Hotsheet, our
subsidiary's proprietary Internet portal. The Hotsheet registration, subject to
renewal, is effective until January 2008. A European Community Trademark
application was submitted for Hotsheet.com on February 16, 2000. The mark has
been published for opposition and the registration is pending. A United States
service mark was received for Shopsheet, a subportal of Hotsheet.com, effective
February 15, 2000, and the registration, subject to renewal, is effective until
February 15, 2010.
7
9
SERVICE AND SUPPORT
We believe that customer service is an important factor in product sales and
customer satisfaction. Service and support include TST's own in-house trucking
that back-hauls goods for other entities, which reduces transportation costs
and improves customer service. Our in-house graphics department can design and
prepare layouts of packaging and can produce negatives, which allows TST speed
and flexibility when bringing new products or packaging into the marketplace.
TST also sells its graphics capabilities to its customers. TST's customer
service department can expedite service because its computer system sends a
bill of lading by facsimile to the appropriate distributing warehouse and an
order acknowledgment to the receiving customer when an order is entered by a
customer service representative. TST's computer system automatically calculates
inventory levels at each warehouse and the amount of raw materials it must
purchase, and identifies which of its plant locations will manufacture an
order.
TST also has a collection and credit department. The staff evaluates extensions
of credit and makes written and verbal requests for payment from those
customers whose invoices are not paid within agreed payment terms. In-house
counsel is available to assist the credit department in difficult collections.
TST offers a 120-day warranty on all of its products. To date, warranty expense
has been minimal.
ENVIRONMENTAL REGULATION
We believe that compliance with any environmental regulations that may be
applicable to us will not have a material adverse effect on our capital
expenditures, earnings or competitive position.
EMPLOYEES
We had 201 full-time employees at August 31, 2000 of whom approximately 66% are
engaged in manufacturing TST's products. None of our employees are currently
covered by a collective bargaining agreement. We consider our employee
relations to be good as a result of an organizational structure which
encourages individual initiative as well as team work.
ITEM 2. PROPERTIES
TST operates three manufacturing plants encompassing an aggregate of
approximately 242,200 square feet of space. TST owns its manufacturing plants
in Coppell, Texas, Kearneysville, West Virginia and Fontana, California. The
West Virginia property is encumbered by mortgages maturing in 2023. Its
facilities in Fontana, California, are encumbered by a mortgage maturing in
2008. The Coppell, Texas, facility, where our executive offices are located, is
approximately 60,000 square feet and is unencumbered. TST maintains a regional
sales office in Huntington, New York, under a lease which expires May 2003. In
addition, TST maintains warehouse space in Dallas, Texas, under two leases
which expire in September and October 2001. Annual mortgage payments and
minimum lease payments relating to these facilities were approximately $291,000
in fiscal 2000 and $265,000 in fiscal 1999. Costs incurred for the 49 public
warehouses TST utilizes throughout the United States and in Quebec, Canada was
approximately $618,000 for fiscal 2000.
On November 22, 1999, TST entered into a loan agreement with a commercial
financial corporation to co-fund the construction of a new building and the
refinance of the mortgage of its existing facility in West Virginia. On
December 20, 1999, TST executed a commitment letter with the West Virginia
Economic Development Authority on the same project. The expansion building was
constructed on TST's unimproved lot adjacent to its West Virginia plant. The
new building, which is approximately 50,000 square feet, stores inventory.
8
10
Our Hotsheet operation is currently operating from our headquarters at the
Coppell, Texas facility and through its internet service providers located in
Dallas, Texas and Providence, Rhode Island.
We believe the current facilities are in good condition, and are suitable and
adequate for current business needs. We estimate that, as of August 31, 2000,
TST was operating at approximately 65% capacity for all of the products it
manufactures, which will allow it to acquire additional business with no
immediate capital investment.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock is quoted on the Nasdaq National Market ("NNM") under the
symbol "ZCOM." The high and low closing prices for the common stock, as
reported on the NNM, are as follows:
Price Range
-----------
1999 Fiscal Year High Low
----------------------------- --------- ----------
First Quarter (Sept. - Nov.) $ 3.250 $ 1.750
Second Quarter (Dec. - Feb.) 6.125 2.125
Third Quarter (Mar. - May) 5.625 3.000
Fourth Quarter (Jun. - Aug.) 4.563 2.750
2000 Fiscal Year
-----------------------------
First Quarter (Sept. - Nov.) $ 3.875 $ 2.750
Second Quarter (Dec. - Feb.) 4.875 3.250
Third Quarter (Mar. - May) 8.500 3.500
Fourth Quarter (Jun. - Aug.) 5.000 3.250
On November 9, 2000, the closing price for the common stock on the NNM was
$3.00 and the common stock was held by approximately 844 stockholders of
record, including holdings through nominee or street name accounts with
brokers.
We have not paid any dividends on our common stock since inception, and we do
not intend to pay any dividends to our stockholders in the foreseeable future.
We intend to reinvest earnings, if any, in the development and expansion of our
businesses. The declaration of dividends in the future will be at the
discretion of the Board of Directors and will depend upon the earnings, capital
requirements and our financial position, general economic conditions and other
pertinent factors.
9
11
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of our selected financial data as of and for the
five years ended August 31, 2000. The historical financial data has been
derived from our audited financial statements. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements appearing
elsewhere in this document.
SELECTED FINANCIAL DATA (a)
Years Ended August 31,
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
Operations Data:
Net Sales $ 47,722,988 $ 33,634,248 $ 52,202,834 $ 61,506,207 $ 74,117,661
Income (loss) before
extraordinary item 3,005,459 (476,755) (1,084,509) 774,352 931,317
Extraordinary item
(net of taxes) 296,291(b) -- -- -- --
Net Income (loss) 3,301,750 (476,755) (1,084,509) 774,352 931,317
Earnings (loss) per common
share:
Income (loss) before
extraordinary item 0.59 (0.09) (0.20) 0.15 .18
Net Income (loss) 0.65 (0.09) (0.20) 0.15 .18
Consolidated
Balance Sheet Data:
Total assets 17,016,740 18,225,900 23,519,946 33,084,378 39,383,548
Long-term debt (excluding
current maturities) 1,091,789 1,007,038 2,697,512 2,629,272 3,782,079
Stockholders' Equity $ 12,978,058 $ 12,883,430 $ 11,798,921 $ 12,573,273 $ 13,504,590
Notes to Selected Financial Data
(a) This schedule should be read in conjunction with our audited
Consolidated Financial Statements and related notes thereto.
(b) Early extinguishment of debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2000, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 1999
Net Sales - Net sales increased from $61.5 million in fiscal 1999 to $74.1
million in fiscal 2000, an increase of $12.6 million or 20.5%, due to
consolidation within the paper industry resulting in an increased market share
with new customers, and an expanded sales and marketing force.
10
12
Gross Profit - Gross profit increased from $7.7 million in fiscal 1999 to $9.5
million in fiscal 2000, an increase of $1.8 million or 23.9%. Our gross profit
percentage increased from 12.5% for fiscal 1999 to 12.8% for fiscal 2000. Costs
of sales as a percentage of net sales decreased from 87.5% in fiscal 1999 to
87.2% in fiscal 2000. The gross profit and gross profit percentage for fiscal
2000, increased without a corresponding increase in costs of sales as a
percentage of net sales due to the passive capture of new customers in a
consolidating market.
Selling, General and Administrative Expenses - SG&A expenses for fiscal 2000
were $6.8 million, or 9.2% of net sales, as compared to $5.6 million, or 9.1%
of net sales for fiscal 1999. SG&A increased slightly as a percentage of net
sales in fiscal 2000, due to an increase in TST's sales force and associated
expenses.
Interest Expense - Interest expense increased from $833,000 for fiscal 1999 to
$1.3 million for fiscal 2000, an increase of $472,000 or 56.7%. This increase
is attributable to increased borrowings and interest rates under TST's
revolving line of credit. The increased borrowings were incurred to finance
TST's increased inventory and accounts receivable during fiscal 2000, as
compared to fiscal 1999.
Income Taxes - Income tax expense was $557,000 for fiscal 2000, as compared to
$490,000 for fiscal 1999. The tax expense resulted primarily from increased
profits for fiscal 2000.
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1999, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 1998
Net Sales - Net sales increased from $52.2 million in fiscal 1998 to $61.5
million in fiscal 1999, an increase of $9.3 million or 17.8%, as a result of
the increasing sales of branded products.
Gross Profit - Gross profit increased from $4.4 million in fiscal 1998 to $7.7
million in fiscal 1999, an increase of $3.3 million or 75%. Our gross profit
percentage increased from 8.4% for fiscal 1998 to 12.5% for fiscal 1999. Costs
of sales as a percentage of net sales decreased to 87.5% in fiscal 1999, as
compared to 91.6% in fiscal 1998. The increase of our gross profit and gross
profit percentage without a corresponding increase in costs of sales as a
percentage of net sales resulted from sales of certain TST products, such as
higher margin branded products, comprising a significantly larger percentage of
net sales for that period.
Selling, General and Administrative Expenses - SG&A expenses for fiscal 1999
were $5.6 million, or 9.1% of net sales, as compared to $5.3 million, or 10.1%
of net sales for fiscal 1998. SG&A as a dollar amount remained relatively
constant but decreased as a percentage of net sales in fiscal 1999, as compared
to the corresponding period of the prior year, due to increased net sales.
Interest Expense - Interest expense increased from $559,000 for fiscal 1998 as
compared to $833,000 for fiscal 1999, an increase of $274,000 or 49%. This
increase is primarily attributable to increased borrowings under TST's
revolving line of credit. The increased borrowings were incurred to finance
TST's increased inventory and accounts receivable during fiscal 1999, as
compared to fiscal 1998.
Income Taxes - Tax expense was $490,000 for fiscal 1999, as compared to a
$319,000 tax benefit for fiscal 1998. The tax expense resulted primarily from
the profits for fiscal 1999 compared to a loss in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $127,000, or 561% in fiscal 2000, from
$23,000 in fiscal 1999, to $150,000 in fiscal 2000, primarily due to cash
provided by financing activities.
11
13
Borrowings under TST's line of credit increased from $6.4 million at August 31,
1999, to $12.5 million at August 31, 2000, an increase of $6.1 million, or
96.1%. The increased borrowing primarily resulted from TST's increasing its raw
material and finished goods inventories, and increased accounts receivables due
to increased net sales.
Working capital increased to $9.3 million at August 31, 2000, from $8.7 million
at August 31, 1999, an increase of $554,000 or 6.4%. This increase is primarily
attributable to an increase in TST's inventories of $2.4 million, and an
increase in accounts receivable of $2.6 million, offset in part by an increase
in current liabilities of $4.2 million.
In May 1999, TST entered into an agreement with a bank for a two-year renewal
of its revolving line of credit. The loan is secured by, among other things,
inventory, trade receivables, equipment and a personal guarantee of Marshall
Sorokwasz, our Chairman of the Board and President, and Trustee of a trust
which is a principal shareholder of our Company. Available borrowings under
this line of credit, which accrues interest at the prime rate of interest plus
1/4% (9.75% at August 31, 2000), are based upon specified percentages of
eligible accounts receivable and inventories. In March 2000, TST amended its
revolving line of credit to increase the line from $13 million to $14.9
million. The amended loans available borrowings of eligible inventories is
limited by a staggered declining cap based upon certain dates. As of August 31,
2000, there was a $1.9 million borrowing capacity remaining under the $14.9
million revolving line of credit. The revolving credit line will mature in May
2001.
On November 22, 1999, TST entered into a loan agreement with a commercial
financial corporation to co-fund the construction of a new building and the
refinance of the mortgage of its existing facility in West Virginia. On
December 20, 1999, TST executed a commitment letter with the West Virginia
Economic Development Authority on the same project. The expansion building was
constructed on TST's property adjacent to its West Virginia plant. The new
building, which was completed in May 2000 and is 50,000 square feet, stores
inventory. The additional debt incurred at the conclusion of the construction
was approximately $870,000, maturing in 2010.
We believe that the funds available under the loan and loan commitment for the
addition to our West Virginia facility, the revolving credit facility, cash and
cash equivalents, trade credit and internally generated funds will be
sufficient to satisfy our 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 and no
extraordinary adverse events, and there can be no assurance that such
assumptions are correct. In addition, expansion of our operations due to an
increased demand for products TST manufactures or significant growth of
Hotsheet.com, Inc. may require us to obtain additional capital to add new
operations or 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 acceptable terms.
As of August 31, 2000, we did not own derivative or other financial instruments
for trading or speculative purposes. We do not use financial instruments and,
therefore, do not expect the implementation of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" to have a material impact on our financial position or
results operations.
IMPACT OF INFLATION
Inflation is not expected to have a significant impact on our business.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and the Results of
Operations and other sections
12
14
of this Form 10-K contain "forward-looking statements" about our prospects for
the future, including but not limited to our ability to generate sufficient
working capital, our ability to continue to maintain sales to justify capital
expenses, and our ability to generate additional sales to meet business
expansion. 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
we operate, the potential of technological changes which would adversely affect
the need for our products, price fluctuations which could adversely impact the
large inventory we require, loss of any significant customer, and termination
of contracts essential to our business. Parties are cautioned not to rely on
any such forward-looking statements or judgments in making investment
decisions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not exposed to market risks such as foreign currency exchange rates, but
are exposed to risks such as variable interest rates. Market risk is the
potential loss arising from adverse changes in market prices and rates. Our
subsidiaries do not have supply contracts with any of their foreign vendors.
All foreign vendors are paid in United States currency. In addition, TST's
international sales of finished goods is insignificant. Accordingly, there are
not sufficient factors to create a material foreign exchange rate risk;
therefore, we do not use exchange commitments to minimize the negative impact
of foreign currency fluctuations.
We had both fixed-rate and variable-rate debts as of August 31, 2000. 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 our total long-term fixed rate and floating rate debt
approximates fair value. See Note 2 to Notes to Consolidated Financial
Statements. Based upon our market risk sensitive debt outstanding at August 31,
2000, there was no material exposure to our financial position or results of
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements F-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of August 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the Years
Ended August 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended August 31, 2000, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the Years
Ended August 31, 2000, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
13
15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information required by Items 10 through 13 of Part III is incorporated
herein by reference from the indicated sections of the Company's definitive
proxy statement for its annual meeting of stockholders to he held on January
30, 2001 (the "Proxy Statement"). Only those sections of the Proxy Statement
that specifically address the items set forth herein are incorporated by
reference. Such incorporation by reference does not include the Compensation
Committee Report or the Stock Performance Graph, included in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statements of the Company filed in this Annual Report on
Form 10-K are listed in Item 8.
2. Financial Statement Schedules:
The financial statement schedules of the Company filed in this Annual
Report on Form 10-K are listed in the attached Index to Financial
Statement Schedules.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report on
Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K
No report on Form 8-K was filed during the last quarter of the period
covered by this report.
14
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Impreso.com, Inc.
By: /s/ Marshall D. Sorokwasz
---------------------------------
Marshall D. Sorokwasz, President
Dated: November 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ ----------------------------------- -----------------
/s/ Marshall D. Sorokwasz Chairman of the Board, November 28, 2000
- ------------------------------ President, Principal Executive
Marshall D. Sorokwasz Officer and Treasurer
/s/ Richard D. Bloom Senior Vice President of Operations, November 28, 2000
- ------------------------------ Director
Richard D. Bloom
/s/ Donald E. Jett Secretary, Director November 28, 2000
- ------------------------------
Donald E. Jett
/s/ Susan M. Atkins Vice President of Finance, November 28, 2000
- ------------------------------ Principal Financial Officer,
Susan M. Atkins Principal Accounting Officer
/s/ Jay W. Ungerman Director November 28, 2000
- ------------------------------
Jay W. Ungerman
/s/ Robert F. Troisio Director November 28, 2000
- ------------------------------
Robert F. Troisio
/s/ Bob L. Minyard Director November 28, 2000
- ------------------------------
Bob L. Minyard
17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of August 31, 2000
and 1999 F-3
Consolidated Statements of Operations for the Years
Ended August 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended August 31, 2000, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the Years
Ended August 31, 2000, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
F-1
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Impreso.com, Inc.:
We have audited the accompanying consolidated balance sheets of Impreso.com,
Inc. (a Delaware corporation) and subsidiaries as of August 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended August 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Impreso.com, Inc. and
subsidiaries as of August 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended August
31, 2000, in conformity with accounting principles generally accepted in the
United States.
ARTHUR ANDERSEN LLP
Dallas, Texas,
November 9, 2000
F-2
19
IMPRESO.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, August 31,
2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 149,527 $ 22,629
Trade accounts receivable, net of allowance for doubtful accounts
of $168,631 at August 31, 2000 and $130,397 at August 31, 1999 8,914,102 6,295,988
Income tax receivable -- 478,909
Investments in marketable securities 11,088 11,088
Inventories 21,232,863 18,801,015
Prepaid expenses and other 223,113 200,739
Deferred income tax assets 57,335 44,335
------------ ------------
Total current assets 30,588,028 25,854,703
------------ ------------
Property, plant and equipment, at cost 18,648,715 16,845,961
Less-Accumulated depreciation (9,880,019) (9,635,739)
------------ ------------
Net property, plant and equipment 8,768,696 7,210,222
------------ ------------
Other assets 26,824 19,453
------------ ------------
Total assets $ 39,383,548 $ 33,084,378
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
20
IMPRESO.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31, August 31,
2000 1999
----------- -----------
Current liabilities:
Accounts payable $ 6,623,776 $ 9,053,907
Accrued liabilities 1,984,952 1,678,862
Current maturities of long-term debt 247,798 28,179
Line of credit 12,469,390 6,357,787
Current maturities of prepetition debt 7,194 35,233
----------- -----------
Total current liabilities 21,333,110 17,153,968
Deferred income tax liability 763,769 727,865
Long-term debt, net of current maturities 3,529,352 1,744,487
Long-term portion of prepetition debt, net of current maturities 252,727 884,785
----------- -----------
Total liabilities 25,878,958 20,511,105
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized; 0 shares
issued and outstanding -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
5,292,780 issued and outstanding 52,928 52,928
Warrants 110 110
Additional paid-in capital 6,319,572 6,319,572
Retained earnings 7,131,980 6,200,663
----------- -----------
Total stockholders' equity 13,504,590 12,573,273
----------- -----------
Total liabilities and stockholders' equity $39,383,548 $33,084,378
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
21
IMPRESO.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended August 31,
2000 1999 1998
------------ ------------ ------------
Net sales $ 74,117,661 $ 61,506,207 $ 52,202,834
Cost of sales 64,624,852 53,844,953 47,826,763
------------ ------------ ------------
Gross profit 9,492,809 7,661,254 4,376,071
------------ ------------ ------------
Other costs and expenses:
Selling, general and administrative 6,837,737 5,605,959 5,264,735
Interest expense 1,304,369 832,539 558,863
Other income, net (137,791) (41,971) (44,409)
------------ ------------ ------------
Total other costs and expenses 8,004,315 6,396,527 5,779,189
------------ ------------ ------------
Income (loss) before income tax expense 1,488,494 1,264,727 (1,403,118)
------------ ------------ ------------
Income tax expense (benefit):
Current 534,273 478,390 (345,675)
Deferred 22,904 11,985 27,066
------------ ------------ ------------
Total income tax expense (benefit) 557,177 490,375 (318,609)
------------ ------------ ------------
Net income (loss) $ 931,317 $ 774,352 $ (1,084,509)
============ ============ ============
Net income (loss) per share (basic and diluted) $ 0.18 $ 0.15 $ (0.20)
============ ============ ============
Weighted average shares outstanding 5,292,780 5,292,780 5,292,780
============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
22
IMPRESO.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional
$.01 Par Value Paid-In Retained
Shares Amount Capital Warrants Earnings Total
-------------- ------------ ------------ ------------ ------------ ------------
Balance, August 31, 1997 5,292,780 $ 52,928 $ 6,319,572 $ 110 $ 6,510,820 $ 12,883,430
Net loss -- -- -- -- (1,084,509) (1,084,509)
-------------- ------------ ------------ ------------ ------------ ------------
Balance, August 31, 1998 5,292,780 52,928 6,319,572 110 5,426,311 11,798,921
Net income -- -- -- -- 774,352 774,352
-------------- ------------ ------------ ------------ ------------ ------------
Balance, August 31, 1999 5,292,780 52,928 6,319,572 110 6,200,663 12,573,273
Net income -- -- -- -- 931,317 931,317
-------------- ------------ ------------ ------------ ------------ ------------
Balance, August 31, 2000 5,292,780 $ 52,928 $ 6,319,572 $ 110 $ 7,131,980 $ 13,504,590
============== ============ ============ ============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
23
IMPRESO.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended August 31,
2000 1999 1998
------------ ------------ ------------
Cash Flows From Operating Activities:
Net income (loss) $ 931,317 $ 774,352 $ (1,084,509)
Adjustments to reconcile net income (loss) to net
cash used in operating activities-
Depreciation 688,698 544,828 352,211
Gain on sale of property, plant and equipment (17,019) (3,901) --
Deferred income taxes 22,904 58,648 27,066
Increase in trade accounts receivable, net (2,618,114) (61,983) (4,113,837)
(Increase) decrease in income tax receivable 478,909 420 (159,127)
Decrease in investments in marketable
securities -- -- 967,375
Increase in inventory (2,431,848) (9,611,042) (1,300,024)
(Increase) decrease in prepaid expenses and other (22,374) 93,851 222,381
Increase (decrease) in accounts payable (2,430,131) 7,474,969 1,144,607
Increase in accrued liabilities 306,090 630,414 729,143
(Increase) decrease in other assets (7,371) 8,812 403,326
------------ ------------ ------------
Net cash used in operating activities (5,098,939) (90,632) (2,811,388)
------------ ------------ ------------
Cash Flows From Investing Activities:
Additions to property, plant and equipment (2,296,553) (657,735) (3,294,689)
Proceeds from sale of property, plant and equipment 66,400 6,842 --
------------ ------------ ------------
Net cash used in investing activities (2,230,153) (650,893) (3,294,689)
------------ ------------ ------------
Cash Flows From Financing Activities:
Net borrowing on line of credit 6,111,603 755,186 2,766,417
Payments on prepetition debt (660,097) (74,439) (94,673)
Net borrowing (payments) on post-petition debt 2,004,484 (34,433) 1,785,899
------------ ------------ ------------
Net cash provided by financing activities 7,455,990 646,314 4,457,643
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 126,898 (95,211) (1,648,434)
Cash and cash equivalents, beginning of year 22,629 117,840 1,766,274
------------ ------------ ------------
Cash and cash equivalents, end of year $ 149,527 $ 22,629 $ 117,840
============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
24
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS:
Impreso.com, 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, and Hotsheet.com, Inc., the owner and operator of the
Hotsheet.com web portal. TST'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; point of sale and cash register machine rolls; high speed
laser roll paper; wide format engineering rolls; wide format ink jet media; and
processed laser cut sheets. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include Impreso.com, Inc. and the accounts
of its wholly owned subsidiaries. All significant intercompany accounts and
transactions with its consolidated subsidiaries have been eliminated.
Use of Estimates and Concentration of Credit
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
TST sells its paper and film products to dealers and resellers for commercial
and home use. TST reviews all existing customers' financial condition
periodically and monitors average days outstanding in accounts receivable.
Receivables are generally due 30 days from the date of sale. There have been no
unusual credit losses relating to TST's customers.
One TST customer accounted for approximately 28%, 34% and 34% of gross sales,
and 32%, 41% and 48% of accounts receivable for the years ended August 31, 2000,
1999 and 1998, respectively. Another customer represented approximately 11% of
gross sales for the year ended August 31, 2000.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Investments
At August 31, 2000 and 1999, the Company's investments primarily consisted of
common stock of an unrelated
F-8
25
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
publicly traded company. Historical cost approximates fair value at August 31,
2000 and 1999. In accordance with Statement of Financial Accounting Standards
("SFAS") No.115, "Accounting for Certain Investments in Debt and Equity
Securities", the investment was classified as a trading security due to the
securities' liquidity and the Company's intent not to hold the securities until
maturity.
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.
Property, Plant and Equipment
Property, plant and equipment are stated at acquisition or construction cost.
Expenditures for maintenance, repairs and improvements that do not extend the
useful lives of assets are charged to appropriate expense accounts in the year
incurred. Upon disposition of an asset, cost and accumulated depreciation are
removed from the accounts, and any gain or loss is included in the results of
operations. Depreciation is computed on the straight-line basis using the
estimated useful lives of the respective assets, five years for furniture and
fixtures, seven years for equipment and thirty years for buildings.
Revenue Recognition
TST's sales are generally recorded when products are shipped to customers.
Hotsheet.com, Inc. generates its revenue through advertising revenues and
commissions earned.
Advertising
Advertising costs are expensed as incurred. Advertising costs were approximately
$874,000, $617,000 and $424,000 for the years ended August 31, 2000, 1999 and
1998 respectively, and are included in selling, general and administrative
expenses in the accompanying consolidated financial statements.
Other Income, Net
Other income, net, consists primarily of gain on sale of property, plant and
equipment, interest income and net income from Hotsheet.com, Inc.
Cash Flow Information
Cash paid for interest during fiscal years 2000, 1999 and 1998 was $1,304,369,
$832,539 and $558,863, respectively.
Cash paid for income taxes during fiscal years 2000, 1999 and 1998 was $495,477,
$428,381 and $47,295, respectively.
Net Income/Loss Per Share
Basic net income/loss per share is based on the weighted-average number of
common shares outstanding.
F-9
26
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common share equivalents have not been included in the computation of diluted
net income/loss per share as they are anti-dilutive.
Disclosures about Fair Value of Financial Instruments
In accordance with SFAS No.107, "Disclosures About Fair Value of Financial
Instruments," the following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and cash equivalents, accounts receivable, investments and accounts
payable-
The carrying amount approximates fair value.
Long-term debt-
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair market value of
long-term debt at August 31, 2000, is approximately $16.3 million, or
$169,000 less than what TST will pay. This is the result of TST obtaining
favorable interest rates on its prepetition debt.
New Financial Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which was
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Effective Date of SFAS No. 133," which is effective for
fiscal years beginning after June 15, 2000. The Company will adopt SFAS No. 133
on September 1, 2000 as required. The Company does not use derivative
instruments and, therefore, does not expect the implementation of SFAS No. 133
to have a material impact on its financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company will adopt SAB
101 effective September 1, 2000. The Company does not expect implementation of
SAB 101 to have a material impact on its financial position or results of
operations.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
F-10
27
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES:
Inventories consisted of the following:
August 31,
----------
2000 1999
------------ ------------
Finished goods $ 7,875,235 $ 5,126,046
Raw materials 12,624,295 12,826,083
Supplies 643,333 783,964
Work-in-process 90,000 64,922
------------ ------------
Total $ 21,232,863 $ 18,801,015
============ ============
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following:
August 31,
----------
2000 1999
------------ ------------
Buildings and equipment $ 16,681,798 $ 15,116,529
Furniture, fixtures and other 1,966,917 1,729,432
------------ ------------
18,648,715 16,845,961
Less-Accumulated depreciation (9,880,019) (9,635,739)
------------ ------------
Net property, plant and equipment $ 8,768,696 $ 7,210,222
============ ============
5. LONG-TERM DEBT AND LINE OF CREDIT:
The following is a summary of long-term debt and the line of credit:
August 31,
----------
2000 1999
------------- -----------
Line of Credit with a commercial financial corporation under revolving credit line
maturing May 2001, secured by inventories, trade accounts receivable, equipment,
goodwill associated with TST's trademark "IMPRESO" (no value on financial
statements), and a personal guarantee by the trustee of a trust which is a majority
stockholder of the Company, interest payable monthly at prime plus 1/4% (9.75%
at August 31, 2000). $ 12,469,390 $ 6,357,787
Note payable to a commercial financial corporation, secured by real property,
interest at 4.5% above the 11th District Cost of Funds rate (9.75% at August 31,
2000) maturing August 2008. 1,685,461 1,698,720
Note payable to a commercial financial corporation, secured by real property and
equipment, interest at 8.50%, maturing December 2009. 614,097 --
F-11
28
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note payable to a commercial financial corporation, secured by real property and
equipment, interest at 8.50%, maturing August 2010. Revolving lender's blanket
lien subordinated to Note's collateral. 869,940 --
Notes payable to various commercial financial corporations, secured by
equipment, interest rates ranging from 1.9% to 11.17%, maturing at various dates
from June 2001 thru July 2005. 607,652 73,945
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 majority
stockholder, interest at 4%, maturing June 2023. 259,921 373,899
Note payable to a commercial financial corporation, secured by real property,
interest at 6%, maturing May 2003. --- 546,120
--------------- -------------
Total 16,506,461 9,050,471
Less-Current maturities (12,724,382) (6,421,199)
--------------- -------------
Long-term debt $ 3,782,079 $ 2,629,272
--------------- -------------
Prepetition amount listed above represent the renegotiated amounts and terms
under the 1993 plan of reorganization.
In March 2000, TST amended its revolving line of credit to increase the line
from $13 million to $14.9 million. The amended revolving credit line is limited
to the lesser of $14.9 million or a percentage of eligible trade accounts
receivable and inventories, as defined. The amended loan's available borrowings
based upon TST's eligible inventories is limited by a staggered declining cap
based upon certain dates. The remaining availability under the revolving credit
line was $1.9 million as of August 31, 2000.
The line of credit, as amended, has restrictive covenants requiring the
maintenance of a minimum tangible net worth and working capital requirements, as
defined. One of the notes payable contains restrictive covenants on current and
debt to worth ratios, and the payment of cash dividends. As of August 31, 2000,
the Company was in compliance with all covenants. Future maturities of long-term
debt and under the line of credit at August 31, 2000, are as follows:
2001 $ 12,724,382
2002 273,554
2003 284,054
2004 301,269
2005 231,602
Thereafter 2,691,600
-------------
$ 16,506,461
=============
F-12
29
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. TST'S LEASE AGREEMENTS:
TST is obligated under various operating leases for equipment, which expire at
various dates through 2005. Rental expenses under these operating leases were
$295,098, $195,456 and $182,565, for the years ended August 31, 2000, 1999 and
1998 respectively. Future annual minimum lease payments as of August 31, 2000,
are as follows:
2001 $ 221,167
2002 216,630
2003 201,681
2004 60,212
2005 --
Thereafter --
7. COMMITMENTS AND CONTINGENCIES:
Legal-
In the opinion of management, the Company has no pending legal proceedings which
could have a material adverse effect on the results of operations or financial
position of the Company.
TST's Significant Contract-
In April 1997, TST entered into a non-exclusive Trademark Licensing Agreement
with International Business Machines ("IBM") to manufacture and distribute
certain selected products carrying the IBM logo. In March 1999, the Company
extended its agreement with IBM from a four year contract with two one-year
automatic renewals, to a six year contract with two one-year automatic renewals.
TST is required to pay participation fees based upon a percentage of net profits
of these products (as defined by the agreement) and maintain certain sales
volumes and quality standards as required by the agreement. The agreement, under
certain circumstances, may be canceled by either party upon 120 days written
notice.
8. INCOME TAXES:
The Company utilizes the SFAS No. 109, "Accounting for Income Taxes", which
requires among other things, an asset and liability approach for financial
accounting and reporting of income taxes.
Significant components of deferred income taxes at August 31, 2000 and 1999,
were as follows:
August 31,
----------
2000 1999
---------- ----------
Deferred income tax assets-current:
Allowance for doubtful accounts receivable $ 57,335 $ 44,335
Deferred income tax liability-long term:
Tax over book depreciation and amortization (763,769) (727,865)
---------- ----------
Net deferred income tax liabilities $ (706,434) $ (683,530)
========== ==========
F-13
30
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's effective tax rate was different than the statutory federal income
tax rate for the years ended August 31, 2000, 1999 and 1998, as follows:
2000 1999 1998
---------- ---------- ----------
Federal income taxes (benefit) at statutory rate (34%) $ 506,088 $ 430,007 $ (477,061)
State taxes, net of federal income tax benefit 28,072 32,175 9,874
Tax effect of nondeductible items 27,772 27,772 20,810
Alternative minimum taxes -- -- 118,694
Other (4,755) 421 9,074
---------- ---------- ----------
Income tax expense (benefit) $ 557,177 $ 490,375 $ (318,609)
========== ========== ==========
9. MANAGEMENT OWNERSHIP:
The Sorokwasz Irrevocable Trust, whose trustee is the president of the Company,
and the senior vice president of the Company own 44.1% and 14.9%, respectively,
of the outstanding shares of common stock as of August 31, 2000 and 1999.
10. STOCK OPTIONS:
The Company sponsors a stock option plan (the "Plan") for certain employees and
directors of the Company. There are 400,000 shares of common stock reserved for
grants of options under the Plan. Options are granted at the sole discretion of
the Stock Option Committee of the Board of Directors of the Company. The
outstanding options generally vest ratably at various dates through 2003 at an
exercise price of not less than the fair market value at the grant date. The
options generally expire 10 years after the grant date.
In addition, the Company granted outside of the Plan 35,000 options during the
fiscal year ended August 31, 1999. These options vest ratably at various dates
through 2001 at an exercise price of not less than fair market value at the
grant date. These options expire five years after the grant date.
In October 1995, the 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 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 of net income
and earnings per share as if the fair value method had been applied.
The Company has elected to continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and, accordingly, stock options do not represent compensation expense in the
determination of net income in the consolidated statements of operations. Had
stock option compensation expense been determined consistent with the fair value
method of measuring compensation expense under SFAS No. 123, the pro forma
effect for fiscal 2000, 1999 and 1998 would have been a reduction in the
Company's net income, or an increase in net loss, of approximately, $42,000,
$116,000 and $193,000, respectively, and a reduction in net income/loss per
share, of approximately, $.01, $.02 and $.04, respectively.
F-14
31
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In determining the pro forma stock compensation expense, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
fiscal 2000, 1999 and 1998, respectively: expected volatility of 78%, 75% and
60%; risk-free interest rate of 6.23%, 5.67% and 5.45%; expected lives of five
years; and no expected dividends.
At August 31, 2000, the outstanding options to purchase 311,400 shares have
exercise prices ranging from $3.00 to $12.75 (fair market values on dates of
grant) and a weighted-average remaining contractual life of 5.3 years. The fair
value of options granted during the years ended August 31, 2000, 1999 and 1998,
calculated using the Black-Scholes option-pricing model, was approximately
$25,000 ($2.94 per share), $75,000 ($1.99 per share) and $7,600 ($5.48 per
share), respectively. Exercisable options total 280,025 shares and are
exercisable at a weighted-average exercise price of $5.93.
The following table summarizes stock option activity:
Weighted
Available Average
Granted for Grant Price
----------- ------------- --------
August 31, 1997 272,850 82,100 $ 6.17
Granted 1,500 (1,500) $ 9.69
----------- ------------- --------
August 31, 1998 274,350 80,600 $ 6.19
Made Available -- 35,000 N/A
Canceled (11,050) 11,050 $ 6.00
Granted 41,000 (41,000) $ 3.04
----------- ------------- --------
August 31, 1999 304,300 85,650 $ 5.78
Canceled (2,400) 2,400 $ 4.83
Granted 9,500 (9,500) $ 4.84
----------- ------------- --------
August 31, 2000 311,400 78,550 $ 5.76
=========== ============= ========
In connection with TST's initial public offering ("IPO"), TST issued warrants to
its underwriters for $.001 per warrant to purchase an aggregate of 110,000
shares of common stock, at an exercise price of $7.20 per share, which warrants
expired on October 4, 2000. At the time of the IPO, TST also issued a warrant to
a consultant for 10,000 shares of common stock, at an exercise price of $6.60
per share, which warrant expired on October 5, 2000. TST also issued a warrant
to a consultant for 10,000 shares of common stock, exercisable for a period of
five years from December 31, 1995, at an exercise price of $7.20 per share,
which represents a price above the fair market value on the date of grant.
11. EMPLOYEE 401(k) PLAN:
TST has an employee 401(k) plan (the "Plan") that is administered by a national
brokerage firm and administrative fees associated with the Plan are funded by
the Plan. TST's contribution is discretionary and currently matches 10% of the
first 5% of the participating employees' contributions to their 401(k) accounts.
Contributions by TST were $17,154, $16,780 and $15,639 for the years ended
August 31, 2000, 1999 and 1998, respectively.
F-15
32
IMPRESO.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following tabulation presents selected results of operations for the years
ended August 31, 2000 and 1999:
Quarters Ended
--------------
November 30 February 28 May 31 August 31
------------ ------------ ------------ ------------
2000
- ----
Net sales $ 17,105,068 $ 16,801,376 $ 18,051,583 $ 22,159,634
Gross profit $ 1,904,361 $ 2,173,403 $ 2,873,463 $ 2,541,582
Net income $ 125,650 $ 138,423 $ 478,955 $ 188,289
Basic and diluted earnings per share $ 0.02 $ 0.03 $ 0.09 $ 0.04
1999
- ----
Net sales $ 14,701,095 $ 14,278,829 $ 15,416,346 $ 17,109,937
Gross profit $ 1,778,108 $ 1,891,925 $ 1,935,210 $ 2,056,011
Net income $ 136,700 $ 259,436 $ 117,136 $ 261,080
Basic and diluted earnings per share $ 0.03 $ 0.05 $ 0.02 $ 0.05
F-16
33
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
----
Report of Independent Public Accountants S-2
Schedule II - Valuation and Qualifying Accounts S-3
S-1
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Impreso.com, Inc.
and subsidiaries included in this Form 10-K and have issued our report thereon
dated November 9, 2000. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the index to financial statement schedules is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
November 9, 2000
S-2
35
SCHEDULE II
IMPRESO.COM, INC. AND SUBSIDIARIES(a)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 2000, 1999 AND 1998
Additions
Balance at Additions Charged Balance at
Beginning Charged to other End of
of Period to Income Accounts Deductions Period
--------- --------- --------- ------------- ----------
August 31, 2000:
Allowance for doubtful accounts $ 130,397 $ 160,795 -- $(122,561)(b) $ 168,631
--------- --------- --------- --------- ---------
Total reserves and allowances $ 130,397 $ 160,795 -- $(122,561) $ 168,631
========= ========= ========= ========= =========
August 31, 1999:
Allowance for doubtful accounts $ 190,000 $ 85,000 -- $(144,603)(b) $ 130,397
--------- --------- --------- --------- ---------
Total reserves and allowances $ 190,000 $ 85,000 -- $(144,603) $ 130,397
========= ========= ========= ========= =========
August 31, 1998:
Allowance for doubtful accounts $ 130,000 $ 120,000 -- $ (60,000)(b) $ 190,000
--------- --------- --------- --------- ---------
Total reserves and allowances $ 130,000 $ 120,000 -- $ (60,000) $ 190,000
========= ========= ========= ========= =========
- ----------
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Write-off of uncollectible receivables.
S-3
36
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
-------- -----------------------
2.1 Plan and Agreement of Merger, dated as of December 1,
1999, among TST/Impreso, Inc., Impreso.com, Inc. and TST
Merger Corp. (incorporated by reference to Appendix A of
Registration of Impreso.com, Inc. on Form S-4 No.
333-92381)
3(a) Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3(a) to Registration on Form S-4
No. 333-92381)
3(b) By-laws of the Company (incorporated by reference to
Exhibit 3(b) to Registration on Form S-4 No. 333-92381)
4.1 Form of Underwriters' Warrant (incorporated by reference
to Exhibit 4.1 to TST/Impreso Registration Statement on
Form S-1 No. 33-93814)
10(a) 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the TST/Impreso Registration Statement on
Form S-1, No. 33-93814)
10(b) Employment Agreement dated January 27, 1999, between the
Company and Marshall Sorokwasz (incorporated by reference
to Exhibit 10.2 to the TST/Impreso Registration Statement
on Form S-1, No. 33-93814)
10(c) IBM Brand Paper Trademark Licensing Agreement,
effective as of April 30, 1997 and Amendment No. 1
thereto, between TST/Impreso, Inc. and International
Business Machines Corporation (incorporated by
reference to Exhibit 10(c) of TST/Impreso Form
10-Q/A, dated May 31, 1997) [Confidential treatment
has been granted for certain portions of this
Exhibit]
10(d) Amendment Number 2 to the IBM Brand Paper Trademark
Licensing Agreement, dated March 5, 1999, between
TST/Impreso and International Business Machines
Corporation (incorporated by reference to Exhibit
10(d) of TST/Impreso Form 10-Q/A, dated June 17,
1999) [Confidential treatment has been granted for
certain portions of this Exhibit]
21 Subsidiaries of the Registrant
27 Financial data schedule