IMPRESO INC - 10-K Annual Report

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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, 2001

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

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Impreso, Inc.
(Exact name of registrant as specified in its charter)

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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 November 12, 2001, based upon the closing sale price of the
Common Stock as reported on the Nasdaq SmallCap Market, was approximately
$3,630,247.

There were 5,278,780 shares of the registrant's Common Stock outstanding as of
November 12, 2001.

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.

PART I

ITEM 1. BUSINESS

GENERAL

Impreso, 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.

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. On April 26, 2001, TST purchased substantially all of
the assets of the Sky Division of Durango Georgia Converting LLC, increasing the
number of its manufacturing facilities to four. Through its four manufacturing
facilities and 57 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 3,200
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 14 primary categories provide over 500 links to premier sites. Hotsheet is
unique due to the single-page presentation of the main directory.

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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 and Hotsheet Super Search, a "meta-search" that
combines results from multiple web search engines and ranks them by relevance.

TST'S PRODUCTS

The product line during the fiscal year ended August 31, 2001 ("Fiscal 2001")
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.

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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 printing systems, such as IBM's
Infoprint(R) family of continuous-feed printing systems like the
Infoprint 3000, Infoprint 4000, and Infoprint 4100. In addition, this
paper can be used in Xerox(R) or OCE(R) 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.

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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.

PRODUCTS INTRODUCED BY TST IN FISCAL 2001

o Bulk Bin Packaging of Wide Format Engineering Rolls. Packaged for large
users to buy in bulk and conveniently store.

o Expanded Line of Wide Format Ink Jet Media. Additional SKU's with
expanded widths and lengths to accommodate new printer capabilities
within the market.

o Outdoor Banner Material. Part of our Wide Format line of products,
specially designed surface for use by retail signage shops and in-house
sign production.

o Complete Line of ATM Rolls. Expansion of our Point of Sale products for
automated teller machines servicing the financial market.

o CD/DVD Sleeves. Die cut sheeted paper with adhesive strips for printing
and assembling customized CD/DVD protective sheaths.

o CD/DVD Labels. Pre-formatted, die cut, adhesive paper for printing CD/DVD
labels.

o Ink Jet Address Labels. Pre-formatted, die cut, adhesive paper for
printing ink jet address labels.

o Two sided Glossy Coated InkJet Paper. Gloss coated on both sides for
brilliant, high-contrast color images with photographic detail

o Professional Grade Ultimate Glossy Photo Paper. Designed for ink jet
printers, this ultra-bright, 100-plus whiteness paper creates a "true
photograph" look and feel for high-end applications.

o File Folders. Manilla folders available in letter and legal size.

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o Rolodex and Index cards.

o 99 Brite Ultimate InkJet and Ultimate Laser Paper. Twenty-four pound
ultra-bright paper for laser, ink jet, and multi-functional equipment.

o Recycled Computer Paper Line. Three recycled grades introduced with
varying brightnesses, including an 84 bright, 30% post-consumer waste
product which meets governmental agencies' recycled requirements.

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 industry's market and maintenance of
profit margins. TST began shipping IBM branded products in fiscal 1998.
Substantially all of the products manufactured by TST are also marketed under
the IBM Brand Paper Program. 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 Brand Paper Program.

In the first quarter of Fiscal 2001, TST created the ibmezprint.com Website to
provide consumers instructions, accessories, and tools for using IBM branded
paper products. The site contains items such as templates, graphics, and
photographs for home and business use. The site also contains links to our
Company's customers' websites for internet purchases of our products.

TST'S MARKETING AND DISTRIBUTION

TST markets its products to approximately 3,200 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 our 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 2001, we
began supplying through a new channel of distribution, cash register dealers.

TST has 61 distribution points (57 public warehouses and four manufacturing
locations), which enable it to deliver products to most major cities in the
United States within 24 hours. TST's

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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. Wholesale
stationers generally 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 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 discount department stores with retail
sections that sell computer, copier and facsimile related supplies.

o Grocery and Drug Store Chains. These businesses sell computer consumables
as a convenience to its customer and secondary sale to its primary target
product.

o Computer Superstores. Computer superstores sell computer products,
accessories and consumables at retail.

o Wholesale Clubs/Office Superstores. Wholesale clubs/office superstores
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 and 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.

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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. These are 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. These are businesses which offer a broad
line of computer supplies and hardware to resellers.

o Cash Register Dealers. These types of dealers sell cash register systems
and point of sale supplies to businesses such as restaurants and retail
vendors.

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 2001. Staples also accounted for more than 10% of TST's
sales in the years ended August 31, 1999 ("Fiscal 1999") and August 31, 2000
("Fiscal 2000"). 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, Xpedx 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. In
addition, increasing international sourcing of raw materials has impacted
delivery cycles, resulting in TST expanding its inventory to accommodate less
frequent, larger shipments. 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. The acquisition of Sky and its product lines in the
third quarter of Fiscal 2001 was the primary cause of our 38% increase in raw
material and 161% increase in finished goods inventory at August 31, 2001.
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

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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.

During the first and second quarters of Fiscal 2001, the price of raw materials
remained relatively stable. In the third and fourth quarters, prices decreased.
Management believes that raw material paper costs will remain stable in the
first two quarters of the year ending August 31, 2002 ("Fiscal 2002").
Currently, raw material inventory costs still remain equal to average raw
material market costs. Management believes that despite the increase in the
level of TST's inventory, its operations will remain competitive due to a
reduction of competitors in the marketplace and our ability to maintain finished
goods pricing in a weak market.

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 to meet the
requirements of its business. Raw materials represented 45% of TST's total
inventory at August 31, 2001. We believe that TST has a good relationship with
all of its current suppliers.

MARKET CONDITIONS OF TST

Due to actual and proposed price increases by our suppliers, TST implemented
price increases on finished goods in the first quarter of Fiscal 2001, which was
successfully passed on to a majority of TST's customers. Typically, the decline
of raw material prices in the third and fourth quarters of Fiscal 2001 would
have created downward pressure on finished goods selling prices, but fewer
competitors in the marketplace has allowed us to maintain, and in some markets
increase, those margins. If selling prices for products manufactured by us
cannot increase in relation 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.

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.

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TST'S BACKLOG

The dollar value of TST's order backlog as of August 31, 2001 and 2000, was
approximately $ 2.9 million and $2.6 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. TST currently competes principally with manufacturers 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 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. Sales of 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 acquisition
of Sky in Fiscal 2001 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

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percentage of net sales. Other liquidations of competitors were 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 and service mark
is registered in the United States. These registrations are effective until
August 2009 and May 2010, respectively. The IMPRESO trademark is also registered
in Canada and Great Britain. These foreign registrations are effective until
July 2007 and October 2007. The foreign registration renewal for the IMPRESO
trademark in Italy has been submitted, but we have not received the certificate
from the Italian administration. An application to register the IMPRESO
trademark under the new European Community Trademark regulations, which was
filed July 19, 2000, was denied and subsequently abandoned due to the generic
meaning of the word "impreso" in Spain and Portugal. 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)", effective until May 2007. Each of the Lazer Cut
Sheet and Lazer Bond trademarks are applied only to one specific product that
TST manufactures.

The United States service mark registration obtained on Hotsheet, our
subsidiary's proprietary Internet portal, is effective until January 2008. The
European Community Trademark registration for Hotsheet.com is effective until
February 2010. The United States service mark registration for Shopsheet, a
subportal of Hotsheet.com, is effective until February 2010.

The acquisition of Sky's assets in April 2001 included three United States
trademarks: Ecoclaim, Prominence, and Skybrite, which registrations are
effective until July 2011.

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

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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 253 full-time employees at August 31, 2001 of whom approximately 67% 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 four manufacturing plants encompassing an aggregate of
approximately 281,427 square feet of space. TST owns its manufacturing plants in
Coppell, Texas; Kearneysville, West Virginia; Fontana, California; and
Greencastle, Pennsylvania. The facilities in Fontana, California, are encumbered
by a mortgage maturing in 2008. The Coppell and Greencastle plants are
encumbered by mortgages maturing in 2011. The West Virginia property is
encumbered by mortgages maturing in 2023. The Coppell, Texas, facility, where
our executive offices are located, is approximately 75,000 square feet . 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 a month to month lease. Annual mortgage payments and minimum lease
payments relating to these facilities were approximately $656,711 in Fiscal 2001
and $291,000 in Fiscal 2000. Costs incurred for the 57 public warehouses TST
utilizes throughout the United States and in Quebec, Canada was approximately $
1.2 million for Fiscal 2001.

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On April 26, 2001, TST entered into a loan agreement with a commercial financial
corporation to fund the purchase of the Greencastle building and the refinance
of the mortgage of our existing facility in Texas. The Greencastle building is
approximately 39,250 square feet and houses our newest plant.

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, 2001,
TST was operating at approximately 65% capacity for all of the products it
manufactures, which will allow it to increase production to meet increased
demand, if any, 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.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

From September 1, 2000 to May 24, 2001, our stock was reported on the Nasdaq
National Market ("NNM") under the symbol ZCOM. On May 25, 2001, our common stock
began trading on the Nasdaq SmallCap Market ("NSCM") under the symbol "ZCOM."
The high and low closing prices for the common stock, as reported on the NNM and
NSCM in the respective time frames, are as follows:

On November 12, 2001, the closing price for the common stock on the NSCM was
$2.49 and the common stock was held by approximately 706 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, but we may
pay dividends to our stockholders in the foreseeable future. We also 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.

On October 19, 2001, we received notice from the Nasdaq Stock Market that we had
failed to maintain a minimum of two active market makers over the last 10
consecutive trading days as required by the NSCM under Marketplace Rule
4310(c)(1) (the "Rule") . Regaining compliance requires that for a minimum of
ten consecutive trading days, the Company's common stock has at least two active
market makers. We are currently in compliance with all of the remaining
maintenance standard requirements. We were given 30 days in which to regain
compliance with the Rule. On November 21, 2001, we received notice from the
Nasdaq Stock Market that we are in compliance with the Rule.

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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, 2001. 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,

Notes to Selected Financial Data

(a) This schedule should be read in conjunction with our
audited Consolidated Financial Statements and related
notes thereto.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2001, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 2000

Net Sales--- Net sales increased from $74.1 million in Fiscal 2000 to $96.2 in
Fiscal 2001, an increase of $22.1 million or 29.8%, due to the acquisition of
Sky and fewer competitors in the marketplace.

14

Gross Profit--- Gross profit increased from $9.5 million in Fiscal 2000 to $11.5
in Fiscal 2001, an increase of $2.0 million or 20.7%. Our gross profit
percentage decreased from 12.8% for Fiscal 2000 to 11.9% for Fiscal 2001. Costs
of sales as a percentage of net sales slightly increased from 87.2% in Fiscal
2000 to 88.1% in Fiscal 2001. The gross profit increase was primarily the result
of increased sales. The slight decrease in gross profit percentage and increase
of cost of sales as a percentage of net sales was due to increased fixed costs
from the acquisition of Sky and higher transportation costs.

Selling, General and Administrative Expenses--- SG&A expenses for Fiscal 2001
were $7.9 million, or 8.2% of net sales, as compared to $6.8 million, or 9.2% of
net sales for Fiscal 2000. SG&A decreased as a percentage of net sales in Fiscal
2001, due to our acquisition of Sky's customers, elimination of duplicate
marketing personnel and leveraging existing fixed costs.

Interest Expense--- Interest expense increased from $1.3 million for Fiscal 2000
to $1.6 for Fiscal 2001, an increase of $328,000 or 25%. This increase is
attributable to increased borrowings under TST's revolving line of credit and
increased financing of plants and equipment. The increased borrowings were
incurred to finance TST's acquisition of Sky.

Income Taxes--- Income tax expense was $557,000 for Fiscal 2000, as compared to
$777,000 for Fiscal 2001. The increase in tax expense resulted primarily from
increased profits for Fiscal 2001.

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.

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

15

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.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased $61,825, or 41.3%, from $150,000 at August
31, 2000, to $211,000 at August 31, 2001.

Borrowings under TST's line of credit increased from $12.5 million at August 31,
2000 to $18.3 million at August 31, 2001, an increase of $5.8 million, or 47%.
The increased borrowing primarily resulted from TST's increasing its raw
material and finished goods inventories, increased accounts receivables due to
increased net sales, and the purchase of the Sky assets.

Working capital increased to $10.5 million at August 31, 2001, from $9.3 million
at August 31, 2000, an increase of $1.2 million or 12.9%. This increase is
primarily attributable to an increase in TST's inventories of $17.2 million, and
an increase in accounts receivable of $2.8 million, offset in part by an
increase in current liabilities of $18.9 million.

In March 2001, TST entered into an agreement with a bank for a two-year renewal
of its revolving line of credit. The new agreement increases the line from $14.9
million to $22 million. 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% (7.00% at August
31, 2001), are based upon specified percentages of eligible accounts receivable
and inventories. As of August 31, 2001, there was a $3.7 million borrowing
capacity remaining under the $22 million revolving line of credit. The revolving
credit line will mature in May 2003.

On April 26, 2001, TST entered into a loan agreement with a commercial financial
corporation to fund the purchase of the Greencastle facility and the refinance
of its existing facility in Texas. The mortgages on the properties are
approximately $2,210,000, maturing in 2011.

We believe that the funds available under the loans encumbering our California,
Texas, Pennsylvania and West Virginia plants, 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

16

operations or manufacturing facilities. If that should occur, we anticipate that
the funds required 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, 2001, we did not own derivative or other financial instruments
for trading or speculative purposes. We do not use financial instruments and,
therefore, the implementation of Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" does not
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 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, 2001. 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.

17

The estimated fair value of our total long-term fixed rate and floating rate
debt approximates carrying value. See Note 2 to Notes to Consolidated Financial
Statements. Based upon our market risk sensitive debt outstanding at August 31,
2001, 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, 2001 and 2000 F-3

Consolidated Statements of Operations for the Years
Ended August 31, 2001, 2000 and 1999 F-5

Consolidated Statements of Stockholders' Equity
for the Years Ended August 31, 2001, 2000 and 1999 F-6

Consolidated Statements of Cash Flows for the Years
Ended August 31, 2001, 2000 and 1999 F-7

Notes to Consolidated Financial Statements F-8

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

18

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 be held on January 29,
2002 (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.

19

INDEX TO EXHIBITS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Impreso, Inc.:

We have audited the accompanying consolidated balance sheets of Impreso, Inc. (a
Delaware corporation) and subsidiaries as of August 31, 2001 and 2000, 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, 2001.
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, Inc. and subsidiaries
as of August 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the years in the three-year period ended August 31, 2001,
in conformity with accounting principles generally accepted in the United
States.

ARTHUR ANDERSEN LLP

Dallas, Texas,
October 19, 2001

F-2

IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

The accompanying notes are an integral part of
these consolidated financial statements.

F-3

IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of
these consolidated financial statements.

F-4

IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of
these consolidated financial statements.

F-5

IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of
these consolidated financial statements.

F-6

IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of
these consolidated financial statements.

F-7

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, and Hotsheet.com, Inc., the owner and operator of the
Hotsheet.com web portal. 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, 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 approximate 28%, 28% and 34% of gross sales, and
26%, 32% and 41% of accounts receivable for the years ended August 31, 2001,
2000 and 1999, respectively. Another customer represented approximately 11%, 11%
and 8% of gross sales and 13%, 8% and 8% of accounts receivable for the years
ended August 31, 2001, 2000 and 1999, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.

F-8

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 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
$1.2 million, $874,000 and $617,000 for the years ended August 31, 2001, 2000
and 1999 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 2001, 2000 and 1999 was $1.6 million,
$1.3 million and $833,000 respectively.

Cash paid for income taxes during fiscal years 2001, 2000 and 1999 was $677,650,
$495,477 and $428,381, respectively.

Net Income Per Share

Basic net income per share is based on the weighted-average number of common
shares outstanding. Common share equivalents have not been included in the
computation of diluted net income per share to the extent that they are
anti-dilutive. Excluded from the computation of diluted net income per share are
options to purchase 379,400; 266,900 and 263,700 shares of common stock as of
August 31, 2001,

F-9

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2000 and 1999. These options were excluded because the option exercise price was
grater than the average market price of the common stock. Dilutive common share
equivalents did not have a material effect on the income per share calculation.
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, 2001, is approximately $25.5 million, or
$186,000 more 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 Statement
of Financial Accounting Standard ("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 adopted SFAS No. 133 on September 1, 2000 as
required. The Company does not use derivative instruments and, therefore, the
implementation of SFAS No. 133 did not have a material impact on its financial
position or results of operations.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which
became effective for all acquisitions initiated after June 30, 2001. The Company
adopted SFAS No. 141 on June 30, 2001 as required. The Company does not expect
the implementation of SFAS No. 141 for future acquisitions to have a material
impact on its financial position or results of operations.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which will become effective for fiscal years beginning after December
15, 2001. The Company does not expect the implementation of SFAS No. 142 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

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVENTORIES:

Inventories consisted of the following:

4. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment is comprised of the following:

5. LONG-TERM DEBT AND LINE OF CREDIT:

The following is a summary of long-term debt and the line of credit:

F-11

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note payable to a commercial financial corporation, secured by real
property and equipment, payable in monthly installments of $4,457.30
(including interest at 8.50%), Maturing December 2009. 311,942 614,097

Note payable to a commercial financial corporation, secured by real
property and equipment, payable in monthly installments of $10,843.37
(including interest at 8.50%), Maturing August 2010. Revolving lender's
blanket lien subordinated to Note's collateral. 812,436 869,940

Note Payable to a commercial financial corporation, secured by real
property, payable in monthly installments of $2,834.45 (including interest
at 5.5%), maturing November 2010. 243,318 --

Notes payable to various commercial financial corporations, secured by
equipment, interest rates ranging from 1.9% to 11.17%, maturing at
various dates from December 2002 thru July 2005. 638,289 607,652

Notes payable to a commercial financial corporation, secured by real
property and a personal guarantee by the trustee of a trust which is a
majority stockholder of the Company, payable in monthly
installments of $21,406.61 (including interest at 8%), maturing May
2011. 2,213,667 --

Acquisition note payable, unsecured, payable in quarterly
installments of $15,000 (including interest at 8%), maturing April 2006. 285,000 --

Acquisition note payable, secured by equipment, payable in monthly
installments of $16,024.10, no interest, maturing May 2003. 560,458 --

Note payable, unsecured, payable in three weekly installments of
$200,000 beginning in November 2001 and one final payment of
$150,000, no interest, maturing November 2001. 750,000 --

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, payable in monthly installments
of $1,460.83 (including interest at 4%), maturing June 2023. 252,659 259,921
------------ ------------

Total 26,048,838 16,506,461

Less-Current maturities (19,720,384) (12,724,382)
------------ ------------

Long-term debt $ 6,328,454 $ 3,782,079
============ ============

F-12

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Prepetition amount listed above represents the renegotiated amounts and terms
under the 1993 plan of reorganization.

In March 2001, TST amended its revolving line of credit to increase the line
from $14.9 million to $22 million. The amended revolving credit line is limited
to the lesser of $22 million or a percentage of eligible trade accounts
receivable and inventories, as defined. The remaining availability under the
revolving credit line was $3.7 million as of August 31, 2001.

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, 2001,
the Company was in compliance with all covenants. Future maturities of long-term
debt and under the line of credit at August 31, 2001, are as follows:

2002 $ 19,720,384
2003 689,161
2004 657,280
2005 402,935
2006 349,768
Thereafter $ 4,229,310
------------
$ 26,048,838
============

6. ACQUISITION:

On April 26, 2001, the Company, through its main operating subsidiary
TST/Impreso, Inc., acquired substantially all of the assets of the Sky Division
of Durango Georgia Converting LLC, a forms manufacturer, for an aggregate
acquisition cost of $13.3 million. The acquisition cost consists of $12.2
million paid in cash, $941,000 in notes payable to the seller, and $198,000 in
expenses attributable to the acquisition. The acquisition was accounted for
under the purchase method. Based on current estimates, there was no excess
consideration paid over the estimated fair value of tangible net assets
acquired. The Company's consolidated financial statements have incorporated
Sky's operating results from the effective date of the acquisition (April 26,
2001). The following unaudited pro forma financial information combines the
results of operations of the Company and Sky as if the acquisition had taken
place as of September 1, 1999. These results are not intended to be a projection
of future results.

F-13

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In conjunction with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired $ 15,400,000
Net cash paid and notes issued 13,300,000
------------
Liabilities assumed $ 2,100,000
============

7. 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
$367,697, $295,098 and $195,456 for the years ended August 31, 2001, 2000 and
1999, respectively. Future annual minimum lease payments as of August 31, 2001,
are as follows:

2002 $ 224,646
2003 214,831
2004 93,104
2005 8,554
2006 --
Thereafter --

8. 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.

9. 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.

F-14

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Significant components of deferred income taxes at August 31, 2001 and 2000,
were as follows:

The Company's effective tax rate was different than the statutory federal income
tax rate for the years ended August 31, 2001, 2000 and 1999, as follows:

10. RELATED PARTIES:

The Sorokwasz Irrevocable Trust, whose trustee is Marshall Sorokwasz, the
President of the Company, and the Senior Vice President of the Company own 44.2%
and 14.9%, respectively, of the outstanding shares of common stock as of August
31, 2001 and 2000.

A company controlled by the spouse of the Company's President serves as both a
customer of and vendor to the Company. Sales to this related company were
$1,040,325, $431,743, and $417,600 for the years ended August 31, 2001, 2000,
and 1999 respectively. Purchases from the related company totaled $376,694,
$387,649, and $57,600 for the years ended August 31, 2001, 2000, and 1999
respectively. In the opinion of management, these transactions were consummated
on terms equivalent to those that prevail in an arms-length transaction.
Accounts receivable balances as of year-end related to this company were
$47,434, $72,216, and $20,021 for 2001, 2000, and 1999 respectively. For the
years ended 2001, 2000, and 1999, the accounts payable balances to the related
company were $ 9,430, $0, and $5,141 respectively.

11. 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 over years 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.

F-15

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In addition, the Company granted outside of the Plan 35,000 and 156,000 options
during the fiscal years ended August 31, 1999 and 2001, respectively. These
options vest ratably over years at various dates through 2003 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 2001, 2000 and 1999 would have been a reduction in the
Company's net income, of approximately $72,000, $42,000 and $116,000,
respectively, and a reduction in net income per share, of approximately, $.02,
$.01 and $.02, respectively.

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 2001, 2000 and 1999, respectively: expected volatility of 86.2%, 77.6%,
and 75%; risk-free interest rate of 5.16%, 6.23% and 5.67% ; expected lives of
five years; and no expected dividends.

The following tables summarize information about stock options outstanding at
August 31, 2001.

OPTIONS OUTSTANDING

F-16

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OPTIONS EXERCISABLE

The fair value of options granted during the years ended August 31, 2001, 2000,
and 1999, calculated using the Black-Scholes option-pricing model, was
approximately $233,000 ($1.58 per share), $25,000 ($2.94 per share) and $75,000
($1.99 per share), respectively. Exercisable options total 304,650, 280,025, and
254,950 shares for the years ended August 31, 2001, 2000 and 1999, respectively.
These options are exercisable at a weighted-average exercise price of $5.78,
$5.93 and $6.11 for the years ended August 31, 2001, 2000 and 1999,
respectively.

The following table summarizes stock option activity:

F-17

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. 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 $21,746, $17,154 and $16,780 for the years ended
August 31, 2001, 2000, and 1999, respectively.

13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

The following tabulation presents selected results of operations for the years
ended August 31, 2001 and 2000:

14. SUBSEQUENT EVENT:

TST/Impreso, Inc. was awarded approximately $1 million in a United States class
action lawsuit involving international and domestic manufacturers' alleged
attempt to fix jumbo roll thermal facsimile paper prices in the United States.
TST/Impreso, Inc. was not a named plaintiff and did not participate in the
lawsuit. The plaintiff class settled the six year old suit with the defendants
in February 2001 for over $16 million. The award will be reported as other
income in the first quarter of the fiscal year ending August 31, 2002.

F-18

INDEX TO FINANCIAL STATEMENT SCHEDULES

S-1

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, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
October 19, 2001. 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,
October 19, 2001

S-2

SCHEDULE II

IMPRESO, INC. AND SUBSIDIARIES (a)

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999

(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

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, Inc.

By: /s/ Marshall D. Sorokwasz
-------------------------
Marshall D. Sorokwasz, President

Dated: November 29, 2001

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.