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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Impreso, Inc.

(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.

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. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 2003, based upon the closing sale price of the Common Stock as reported on the Nasdaq SmallCap Market, was approximately $ 3,033,427.

There were 5,278,780 shares of the registrant’s Common Stock outstanding as of November 20, 2003.

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.

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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^®, 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. Through its six manufacturing facilities and 51 public distribution warehouse locations throughout the United States and in Quebec, Canada, TST manufactures and distributes its products under its own IMPRESO^® 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 2003, this agreement was extended to 2007.

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 3,800 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^® 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.

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. For the years ended August 31, 2003, 2002 and 2001, net sales of Hotsheet.com , Inc. amounted to $158,755, $122,629, and $171,256, respectively.

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TST’S PRODUCTS

The product line during the fiscal year ended August 31, 2001 (“Fiscal 2001”) consisted of the following:

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.

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.

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^®.

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.

Digital Photo Ink Jet Paper. Used for printing images from digital cameras, photo CD’s, the Internet, or desktop scanners.

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.

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.

Ink Jet Coated Canvas. A textured product which creates the illusion of a painted surface.

Transparency Film for Ink Jet Printers. Clear film specially coated for smudge/bleed-free color or black ink jet imaging.

Transparency Film for Copier and Laser Printers. Overhead transparencies can be created using a plain paper copier and this film.

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.

T-Shirt Transfers. A computer and ink jet printer can create personalized designs for applications on various cotton materials.

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Point of Sale and Cash Register Machine Rolls. Available in both thermal and plain paper.

Fine Cotton Business Stationery Line. Fine cotton business stationery for sale at the retail level. 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^® family of continuous-feed printing systems like the Infoprint 3000, Infoprint 4000, and Infoprint 4100. 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.

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.

Wide Format Ink Jet Media. Available in a wide variety of coated papers and films used for full color graphic signage and display.

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.

Ink Jet Greeting Cards. Pre-scored white card stock in matte and glossy finishes, packaged with matching envelopes.

Ink Jet Bumper Stickers. Coated vinyl bumper sticker material for use in ink jet printers to create personalized bumper stickers.

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.

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

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

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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.

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

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

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

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

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

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.

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

Rolodex and Index cards.

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

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.

Custom Printed Point of Sale/Add Rolls (Company logo, return policy, etc.)

Crayola Brand “Print & Color” Specialty Fun Papers: Includes Crayola T-Shirt Transfers, Crayola Greeting Cards with Envelopes, Crayola Glossy Photo Paper, Crayola Classic Colors, Crayola Assorted Brights and Pastels, Crayola Cling Art, Crayola Stardust Magnets and Stickers, Crayola Stardust Paper and Crayola Repositional Stickers.

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. Through various amendments the authorized product lines have been expanded and the term extended to April 30, 2007. 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

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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 February 2002, TST entered into a trademark licensing agreement with Binney & Smith, owner of the Crayola Trademark. The agreement provides for TST to manufacture and distribute a select line of Crayola® imaging products such as Laser and Ink Jet paper, card stock, post cards, magnets, and t-shirt transfers within the United States, Canada and Mexico. TST began shipping Crayola branded products in March 2002. The addition of the Crayola brand has helped the Company diversify its position in the retail segment through mass merchant and food and drug store channels by attracting new end-users such as teachers, children and parents. Management believes that brand name identification is an effective tool for penetration of the paper industry’s market and maintenance of profit margins.

TST’S MARKETING AND DISTRIBUTION

TST markets its products to approximately 3800 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 size 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.

TST has 57 distribution points (51 public distribution warehouses and six manufacturing locations), 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:

•		Business Forms Dealers - Businesses that primarily buy and resell various types of business forms. Examples include Standard Forms, American Business Forms and Better Business Forms.
•		Wholesale Stationers - Businesses that supply a large variety of office products to office product dealers. Wholesale stationers generally do not sell directly to the end user. Examples include United Stationers, SP Richards, and Daisytek.
•		Office Products Dealers - Businesses that generally purchase a majority of their products from wholesale stationers, but often negotiate directly with manufacturers. Examples include Navrat’s Office Products and Crest Office Supply.

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•		Paper Merchants - Businesses that sell all types of papers to printers and dealers and directly to end users. Examples include Unisource, Xpedx and Ris Paper.
•		Consumer Electronics Stores - Businesses that sell retail to the end user in a broad spectrum electronics environment. Examples include Frye’s, Best Buy and CompUSA.
•		Mass Merchants - Discount department stores with retail sections that sell computer, copier and facsimile related supplies. Examples include Kmart and Army and Air Force Exchange Service.
•		Grocery and Drug Store Chains - Businesses that sell computer consumables as a convenience to its customer and secondary sale to its primary target product. Examples include Walgreen’s, Kroger and Rite-Aid.
•		Wholesale Clubs/Office Superstores - Businesses that sell large quantities of inventory at or 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. Examples include Staples, Costco and BJ’s.
•		Buying Groups - 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. Examples include Independent Stationers and Association of Independent Printing Paper Merchants.
•		Computer Aided Design (CAD) Supply Dealers - Dealers that typically sell wide format supplies and papers to architects and engineers. Examples include CAD Supply Specialty and IMPACO.
•		Contract Stationers - Companies that offer a complete catalog of office and business supplies generally to large corporations. In many cases, various types of products are bundled and sold under contract. Examples include Corporate Express, Boise Cascade Office Products and Staples.
•		Cash Register Dealers - Dealers that sell cash register systems and point of sale supplies to businesses such as restaurants and retail vendors. Examples include Impact Paper, USA Paper and Columbia Paper & Ribbon.

Though 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. One customer, Staples, Inc. (“Staples”) accounted for more than 10% of TST’s sales in the years ended August 31, 2003, 2002 and 2001. Another customer, Xpedx, accounted for more than 10% of TST’s sales in the years ended August 31, 2002 and 2001. 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.

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INVENTORY MANAGEMENT; RAW MATERIALS OF TST

We believe that it is necessary for TST to maintain a sufficient inventory of finished goods and raw materials to adequately service its customers. In recent years inventory levels had been increased to facilitate the introduction of new brands and expanded product lines. At the beginning of the year ended August 31, 2002 (“Fiscal 2002”), we implemented a program to reduce inventory and reduced inventory levels by $4.35 million. This is in addition to the depletion of $3 million of inventory acquired in the purchase of the assets of United Computer Supplies, Inc. in April 2002. We reduced inventory levels in the fiscal year ending August 31, 2003 (“Fiscal 2003”) by $5.6 million. Management intends to continue reducing inventory through the year ending August 31, 2004 (“Fiscal 2004”), however, downward pressures on raw material prices could compress the market for our existing inventory and have a material adverse effect on the results of operations of TST or restrain our attempts at further reducing inventory.

In recent years we have depended primarily on international vendors of raw materials. One of the largest vendors from Asia suffered a financial crisis and created a supply disruption and a tighter raw material market for the Company. In reaction to the last year the Company shifted its supply chain from international to domestic sources, which historically charge higher prices for raw materials. This shift could have a material adverse effect on the results of operation by making our finished goods pricing uncompetitive

For the six month period ended February 28, 2003, the price of raw materials had remained relatively stable. During the third and fourth quarter of Fiscal 2003, the price of raw materials rapidly dropped. Prices continued to decrease through the first quarter of Fiscal 2004, but we believe they will stabilize in the second quarter.

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, 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.

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. We believe that TST has a good relationship with all of its current suppliers.

MARKET CONDITIONS OF TST

The primary product produced by the Company is continuous feed business forms. Management believes that the market for business forms, which declined in 2003, will continue to decline in 2004. Management believes that the slowed economy had a significant impact on Fourth Quarter results of operation, and will continue to affect the year ending August 31, 2004, results of operations.

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The slowed economy has resulted in an increase in bad debt. One of our larger customers filed a Chapter 11 bankruptcy on May 7, 2003, owing us approximately $450,000. This amount, has been written off as bad debt expense this fiscal year. Although the Company has not been served with any notice of a preference action, we could be subject to a preference action of approximately $1 million by the debtor’s bankruptcy trustee. Due to the range of remittance dates by the debtor before and during the preference period, we believe we will prevail in any litigation by the trustee of the bankruptcy for this alleged preference with the ordinary course of business defense available under the Bankruptcy Code.

TST sales significantly declined in June, July, and August 2003, which resulted in poor financial performance. In order to reduce our overhead to compensate for reduced sales on September 30, 2003, we reduced our workforce and employee benefits, eliminated administrative overtime, froze wages and all capital expenditures. When all reductions are completely implemented, we estimate a reduction of expenses on an annual basis of $2.5 million.

SEASONALITY

TST may be subject to certain seasonal fluctuations in that orders for products may decline over the summer months. If the market for finished goods decreases, then the adverse impact of the seasonal fluctuations on the Company will be greater.

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, 2003 and 2002, was approximately $ 3.2 million and $3.7 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,

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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, 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.

Over the past 10 years, the number of national producers of stock computer forms has decreased from 19 to two through consolidation and business closures. Continuing consolidation within the paper industry of regional suppliers provides new customer opportunities for TST, which offsets the loss of customers who are going out of business from the slowed economy. The acquisition of United in Fiscal 2002 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 percentage of net sales.

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.

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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^®”, 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 United’s assets in March 2002 included one United States trademark: Computer Paper, Computer Paper, which registration is effective until December 2003.

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 which 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.

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EMPLOYEES

We had 295 full-time employees at August 31, 2003 of whom approximately 70% 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 six manufacturing plants encompassing an aggregate of approximately 419,000 square feet of space. The Coppell, Texas, facility, where our executive offices are located, is approximately 75,000 square feet. TST owns five of its manufacturing plants, which are located in Coppell, Texas; Kearneysville, West Virginia; Fontana, California; Greencastle, Pennsylvania; and Itasca, Illinois. 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 Itasca, Illinois facility’s mortgage matures in April 2012. TST maintains a manufacturing facility in Elk Grove, Illinois and warehouse space in Dallas, Texas under month to month leases. Two regional office spaces in Reading, Pennsylvania and Hunnington, New York were terminated in fiscal 2003. Annual mortgage payments and minimum lease payments relating to these facilities were approximately $768,495 in Fiscal 2003 and $998,409 in Fiscal 2002. Costs incurred for the 51 public distribution and 7 storage warehouses TST utilizes throughout the United States and in Quebec, Canada was approximately $1.6 million for Fiscal 2003.

In August 2003, TST executed a lease with an option to purchase a 414,000 manufacturing facility located in Chambersburg, Pennsylvania. The Landlord is completing substantial renovations on the building and we believe the plant will be available for full occupancy in January 2004. We intend to exit and sell the Kearneysville, West Virginia and Greencastle, Pennsylvania buildings as soon as practical. We will also exit four storage warehouses and store the inventory in Chambersburg.

The Itasca, Illinois plant is under expansion. We are adding on 34,820 square feet and intend to consolidate the Elk Grove plant into Itasca.

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, 2003, TST was operating at approximately 75% 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.

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.

ITEM 3. LEGAL PROCEEDINGS

On September 18, 2002, TST filed a lawsuit against a vendor in the United States District Court for the Northern District of Texas — Dallas Division. Simultaneously with the initiation of the

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lawsuit, TST requested that its disputes with the vendor be submitted to arbitration through the American Arbitration Association’s Dallas, Texas office. TST’s general claim is that the vendor breached a Distributor Agreement entered into with TST in several material respects, including the vendor’s late delivery of paper products, the vendor’s delivery of defective product, and the vendor’s failure to properly credit TST’s accounts based upon these and other alleged breaches. The vendor responded to TST’s demand for arbitration by generally denying TST’s claims and asserting a counterclaim seeking to recover disputed accounts receivable and damages related to TST’s alleged interference with the vendor’s relationship with its lender. Trial is set for March 2005.

In Fiscal 2003 an employee filed suit under the Family Leave and Medical Act claiming retaliatory treatment (firing) in violation of the FMLA. TST intends to vigorously contest liability and believes the lawsuit is without merit. The amount of her claim is not known at this time. There is no trial setting.

TST is the defendant in a suit filed in Fiscal 2003 for the collection of sums due under two promissory notes. These liabilities are included on the Company’s balance sheet. TST recently filed a motion to stay the adversary proceeding and to compel arbitration in Dallas, Texas under the terms of the parties purchase agreement. TST asserts that liability does not exist because of fraud and contractual breaches in connection with the agreements.

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

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:

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On November 19, 2003, the closing price for the common stock on the NSCM was $1.86 and the common stock was held by approximately 750 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 dividends to our stockholders in the foreseeable future. Any such dividends will be declared in compliance with the restrictive covenants of our subsidiary’s lender that no cash dividends paid during any one calendar year shall exceed current year’s net profit. 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.

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, 2003 (“Fiscal 2003”). 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,

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

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

CRITICAL ACCOUNTING POLICIES

The accounting policies described below are those the Company considers critical in preparing its consolidated financial statements . These policies require the application of significant judgement by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent degree of uncertainty. These judgements are based on historical experience, the Company’s observation of trends in the industry, information provided by customers and information available from other outside sources, as appropriate and available at the time the estimates are made. However, as described below, these estimates could change materially if different information or assumptions were used. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment or estimation than other accounting policies.

Accounts Receivable (doubtful accounts) Reserves

The Company provides for losses on accounts receivable based upon their current status, historical experience and management’s evaluation of existing economic conditions. Significant changes in customer profitability or general economic conditions may have a significant effect on the Company’s allowance for doubtful accounts.

Revenue Recognition

TST’s sales are recorded when products are shipped to customers. TST is reasonably assured a majority of the sales are collectible upon shipment due to its credit policies and collection methods. For those accounts TST is not reasonably assured of collection the Company reserves against doubtful accounts based upon historical experience and management’s evaluation of existing economic conditions. Hotsheet.com, Inc. generates its revenue by click through fee advertising revenues and commissions earned. Click through fees are generated when traffic is sent from the Hotsheet.com website, via a link, to a vendors website. Commissions are generated when the linked traffic makes purchases. The revenue is recognized upon receipt.

Inventories

Inventories are valued at the lower of cost or market, cost being determined on the first-in, first-out method. Reserves for slow moving, obsolete products, or bad (damaged) products are based on historical experience, acquisition activities, and secured lender policies. The Company evaluates, and if necessary, adjusts reserves quarterly.

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Historically, the Company has not reserved for slow moving, obsolete or bad inventories. Substantially all of the slow moving products can be repackaged into different formats or labels. Demand for products that are associated with obsolete technology slowly decline as sales of new hardware requiring new or different consumables increase. The reduced demand for products which are becoming obsolete is easily monitored and scheduled production of these items is adjusted accordingly. If damage is caused to a product it is most often minor in value and expensed as damage occurs.

The Company records reductions in revenue when products are returned. Returns and allowances are monitored based on a historical percentage of sales. All returns must be approved by the Company prior to the product being returned, and in some instances a restocking fee is charged to the customer. The Company also monitors reasons for return, such as quality, shipping errors or ordering errors.

Commissions and Rebates

The Company reserves commissions and rebates paid to certain customers based on specific contractual agreements. These reserves are calculated based upon sales by customer, and adjusted quarterly to reflect increases and decreases in each customer’s sales and payments of commissions and rebates.

RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2003, AS COMPARED TO THE YEAR ENDED AUGUST 31, 2002

Net Sales—Net sales decreased from $123.1 million in Fiscal 2002 to $120.5 million in Fiscal 2003, a decrease of $2.6 million or 2.1%, due primarily to a slowed economy.

Gross Profit—Gross profit increased from $12.6 million in Fiscal 2002 to $12.7 million in Fiscal 2003, an increase of $87,000 or 1.0%. Our gross profit percentage increased from 10.3% for Fiscal 2002 to 10.5% for Fiscal 2003. The gross profit percentage increase was primarily the result of the price of paper falling more rapidly than the reduction of our selling prices to our customers.

Selling, General and Administrative Expenses—SG&A expenses for Fiscal 2003 were $10.2 million, 8.5 % of net sales, as compared to $9.3 million, or 7.6% of net sales for Fiscal 2002. SG&A increased as a percentage of net sales in Fiscal 2003, due to the rising cost of employee health benefits and bad debt write off.

Interest Expense—Interest expense increased from $1.7 million for Fiscal 2002 to $1.8 million for Fiscal 2003, an increase of $43,000 or 2.5%. This increase is attributable to the United Computer Supplies, Inc. acquisition plants and equipment financing.

Income Taxes—Income tax expense was $1.1 million for Fiscal 2002 as compared to $400,100 for Fiscal 2003. The decrease in tax expense resulted primarily from decreased profits and other income for Fiscal 2003.

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RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2002, AS COMPARED TO THE YEAR ENDED AUGUST 31, 2001

Net Sales—Net sales increased from $96.2 million in Fiscal 2001 to $123.1 million in Fiscal 2002, an increase of $26.9 million or 27.9%, due primarily to the acquisition of United and fewer competitors in the marketplace.

Gross Profit—Gross profit increased from $11.5 million in Fiscal 2001 to $12.6 million in Fiscal 2002, an increase of $1.2 million or 10.1%. Our gross profit percentage decreased from 11.9% for Fiscal 2001 to 10.3% for Fiscal 2002. The gross profit percentage decrease was primarily the result of increased fixed costs from the acquisition of United and higher transportation costs.

Selling, General and Administrative Expenses-— SG&A expenses for Fiscal 2002 were $9.3 million, or 7.6% of net sales, as compared to $7.9 million, or 8.2% of net sales for Fiscal 2001. SG&A decreased as a percentage of net sales in Fiscal 2002, due to our acquisition of United’s customers, elimination of duplicate marketing personnel and leveraging existing fixed costs.

Interest Expense-— Interest expense increased from $1.6 million for Fiscal 2001 to $1.7 million for Fiscal 2002, an increase of $112,000 or 6.9%. This increase is attributable to increased financing of plants and equipment.

Income Taxes-— Income tax expense was $777,000 for Fiscal 2001, as compared to $1.1 million for Fiscal 2002. The increase in tax expense resulted primarily from increased profits and other income for Fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased from $203,000 at August 31, 2002 to $95,000 at August 31, 2003.

Borrowings under TST’s line of credit decreased from $17.9 million at August 31, 2002 to $14.4 at August 31, 2003, a decrease of $3.5 million, or 19.6%. The decreased borrowing primarily resulted from TST decreasing its raw material inventory.

Working capital increased to $12.7 million at August 31, 2003, from $11.9 million at August 31, 2002, an increase of $800,000 or 6.7%. This increase is primarily attributable to a decrease in TST’s Accounts Payable of $5.2 million, and a decrease in borrowings under its line of credit of $3.5 million.

Effective October 28, 2002, TST entered into an amended and restated loan agreement with a commercial financial corporation, which matures in May 2004. The agreement provides for a $25 million line of credit and an inventory sub-limit of $21 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

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shareholder of our Company. A new provision in the amended and restated loan agreement allows the Company to elect the application of a Eurodollar interest rate plus 2.75% for 30, 60 or 90 day periods to specified amounts of the loan. Available borrowings under this line of credit, which accrued interest since July 3, 2003, on $12,000,000 at LIBOR plus 2.75% (3.86 % at August 31, 2003), balance at prime plus .25% (4.25 % at August 31, 2003), are based upon specified percentages of eligible accounts receivable and inventories. As of August 31, 2003, there was a $5.8 million borrowing capacity remaining under the $25 million revolving line of credit. The revolving credit line will mature in May 2004.

On October 6, 2003, we executed another 90 day LIBOR interest rate election of 1.150 % plus 2.75%, to $10 million of our outstanding loan balance.

On April 22, 2003, we executed a one-year, $1.4 million construction loan with the current mortgagee of the Itasca, Illinois building to expand the building an additional 34, 800 square feet.

We believe that the funds available under the loans encumbering our California, Texas, Pennsylvania, Illinois and West Virginia plants, the construction loan for the expansion at the Itasca 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, 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.

At August 31, 2003, the Company had the following contractual obligations and other commercial commitments*:

*This table does not include the balance on the revolving line of credit.

**Excludes related interest amounts.

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As of August 31, 2003, 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” did not have a material impact on our financial position or results of operations.

SUBSEQUENT EVENTS

In September 2003, the Company implemented numerous cost savings measures such as an approximate 15% reduction in our workforce and reduction of various benefits. We believe these actions, combined with our in-progress reconfiguration and consolidation of our operations will have a significant affect on income and profitability in the future. We intend to exit and sell two plants and have exited four public warehouses, combining all of these operations in a Chambersburg, Pennsylvania building we leased. The Landlord of the building is renovating the project and we expect to fully occupy the facility in January 2004. In addition, we are expanding our Itasca, Illinois plant by 34,800 square feet, and intend to exit our leased building in Elk Grove, Illinois, consolidating it in Itasca. We expect this construction to be completed in March 2004. Once both projects are completed, the company will have reduced the number of manufacturing locations the company operates from six to four, with square footage increasing from approximately 420,000 to 690,000. From November 30, 2002, to December 9, 2003, our borrowings on our line of credit decreased from approximately $23 million to $8.9 million. During the same period, the Company reduced its inventory from approximately $40 million to $23.3 million.

On October 9, 2003, in the United States District Court Central District of California Southern Division, Avery Dennison Office Products Company and Avery Dennison Corporation (“Avery”) filed a patent infringement lawsuit against TST claiming TST’s business cut card products infringed on patents and pending patents owned by Avery. The parties have executed a standstill agreement while TST investigated the claim and the parties negotiate settlement. If the products do infringe on Avery’s patents, TST, under the Uniform Commercial Code, will file a lawsuit against our suppliers for selling products that infringed on a patent. We also filed claim with our insurance carrier requesting coverage under the advertising endorsement. The insurance company has reserved their decision pending their own investigation.

On November 5, 2003, we discovered the Company’s payroll administrator was fraudulently diverting Company funds into her personal bank account. The payroll administrator admitted guilt to the FBI and our bank’s internal investigator. The investigation by the FBI, the bank and the Company to date has revealed an approximate loss of $580,000 over a period starting in September 2000 until October 2003. The investigation is not complete. The Company has notified its insurance Company of the loss under its employee theft coverage and management believes that a majority of the losses will be reimbursed by insurance. Management has recently hired a full time internal audit specialist to lead its efforts to evaluate and improve its internal accounting controls and this individual will be heading up the company’s efforts to establish more effective internal controls over the payroll processing function. The Company is cooperating with the FBI in its investigation and prosecution of the Company’s former employee.

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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, 2003. 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 carrying value. See Note 2 to Consolidated Financial Statements. Based upon our market risk sensitive debt outstanding at August 31, 2003, there was no material exposure to our financial position or results of operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of controls and procedures

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. Subsequent to this review, the following issues came to the attention of management.

Payroll Fraud

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected the Company’s internal control over financial reporting. However on November 5, 2003, we discovered the Company’s payroll administrator was allegedly fraudulently diverting Company funds into her personal bank account. The payroll administrator admitted guilt to the FBI and our bank’s internal investigator. The investigation by the FBI, the bank and the Company to date has revealed an approximate loss of $580,000 over a period starting in September 2000 until October 2003. The investigation is not complete. The Company has notified its insurance Company of the loss under its employee theft coverage and management believes that a majority of the losses will be reimbursed by insurance. Management has recently hired a full time internal audit specialist to

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lead its efforts to evaluate and improve its internal accounting controls and this individual will be heading up the company’s efforts to establish more effective internal controls over the payroll processing function. The Company is cooperating with the FBI in its investigation and prosecution of the Company’s former employee.

(b)  Material weaknesses regarding credit memo issuance

During the course of the audit of our August 31, 2003 financial statements, our auditors determined that credit memos in the amount of $500,000, for product returned primarily during the fourth quarter of fiscal 2003, were issued subsequent to year-end. An adjustment for this amount was made to the year-end financial statements to reduce accounts receivable and increase returns and allowances. Management has determined that this adjustment did not have a material impact on the previous fiscal quarters.

In response to the credit memo issue, management has instituted a more thorough reconciliation process to ensure proper cut-off regarding the issuance of credit memos for product returns.

(c)  Other items

In addition to the above, in connection with their audit of our August 31, 2003 financial statements, our auditors communicated to the Audit Committee and to management reportable conditions in the Company’s internal control system. These reportable conditions related to:

	•		Accounting for revenue/accounts receivable transactions including accounting for discounts taken by customers and for cash receipts and lack of timely reconciliation of accounts receivable
	•		Segregation of duties in the accounting department
	•		The need for improvements to controls over cash disbursement transactions.

Corrective actions have been developed and are being implemented to eliminate or reduce to an acceptable level the financial reporting risks associated with the conditions noted. The company believes that it will correct all these conditions during fiscal 2004. Our independent auditors did not modify their report on the Company’s August 31, 2003 audited financial statements as a consequence of these reportable conditions.

As noted above, management has recently hired a full time internal audit specialist to lead its efforts to improve internal controls and disclosure controls. Management has directed the internal audit specialist to undertake a comprehensive review of the company’s internal accounting controls. It is management’s intention to aggressively address the above issues and to continue to work to ensure the Company has in place rigorous internal and disclosure controls.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

We have adopted a code of ethics that applies to all of our principal executive officers and senior

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financial officers. This code of ethics is posted on our Website. The Internet address for our Website is http://www.tstimpreso.com, and the code of ethics may be found as follows:

1) From our main Web page, first click on “Corporate Info”.

2) then click on “Corporate Compliance”.

Or for a mailed copy call (972) 462-0100 ext 1117.

We intend to satisfy the disclosure requirement required under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address and location specified above.

The remaining information required by this item is incorporated herein by reference in the Company’s definitive proxy statement to be filed with the Commission not later than 120 days after August 31, 2003.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference in the Company’s definitive proxy statement to be filed with the Commission not later than 120 days after August 31, 2003.

ITEM. 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference in the Company’s definitive proxy statement to be filed with the Commission not later than 120 days after August 31, 2003..

ITEM. 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference in the Company’s definitive proxy statement to be filed with the Commission not later than 120 days after August 31, 2003.

ITEM. 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference in the Company’s definitive proxy statement to be filed with the Commission not later than 120 days after August 31, 2003.

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PART IV

ITEM 15. 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.

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INDEX TO EXHIBITS

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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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, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. 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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 2003 and 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Impreso, Inc. and subsidiaries as of August 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Blackman Kallick Bartelstein, LLP
Chicago, Illinois
November 14, 2003

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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

THIS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS IS A COPY
AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN, LLP

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IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

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

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IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDERS’ EQUITY

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

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IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

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IMPRESO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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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. For the years ended August 31, 2003, 2002 and 2001, net sales of Hotsheet.com, Inc. amounted to $158,755, $122,629 and $171,256, respectively.

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 as of 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 22%, 20%, and 28% of gross sales, and 26%, 16%, and 26% of accounts receivable as of, or for the years ended August 31, 2003, 2002 and 2001, respectively. Another customer represented approximately 8%, 11%, and 11% of gross sales and 15%, 9%, and 13% of accounts receivable as of, or for the years ended August 31, 2003, 2002 and 2001, respectively.

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Cash and Cash Equivalents

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

Accounts Receivable (doubtful accounts) Reserves

The Company provides for losses on accounts receivable based upon their current status, historical experience and management’s evaluation of existing economic conditions. Significant changes in customer profitability or general economic conditions may have a significant effect on the Company’s allowance for doubtful accounts.

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.

Historically, the Company has not reserved for slow moving, obsolete or bad inventories. Substantially all of the slow moving products can be repackaged into different formats or labels. Demand for products that are associated with obsolete technology slowly decline as sales of new hardware requiring new or different consumables increase. The reduced demand for products which are becoming obsolete is easily monitored and scheduled production of these items is adjusted accordingly. If damage is caused to a product it is most often minor in value and expensed as damage occurs.

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. TST is reasonably assured that its sales are collectible upon shipment due to its credit policies and collection methods. For those accounts TST is not reasonably assured of collection, the Company reserves against doubtful accounts based upon historical experience and management’s evaluation of existing economic conditions.

Hotsheet.com, Inc. generates its revenue by click through fee advertising revenues and commissions earned. Click through fees are generated when traffic is sent from the Hotsheet.com website, via a link, to a vendors website. Commissions are generated when the linked traffic makes purchases. The revenue is recognized upon receipt.

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IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Commissions and Rebates

The Company reserves commissions and rebates paid to certain customers based on specific contractual agreements. These reserves are calculated based upon sales by customer, and adjusted quarterly to reflect increases and decreases in each customer’s sales and payments of commissions and rebates.

Advertising

Advertising costs are expensed as incurred. Advertising costs were approximately $1 million, $1.1 million, and $1.2 million for the years ended August 31, 2003, 2002 and 2001, 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 interest income and billboard and office space lease income at the Itasca, Illinois facility.

Litigation Settlement

In a United States class action lawsuit involving international and domestic manufacturers’ attempt to fix jumbo roll thermal facsimile paper prices in the United States, Impreso, Inc. was awarded over $1 million in November 2001. The plaintiff class settled with the defendants for over $16 million. Impreso, Inc. did not participate in the ongoing litigation, but was awarded over $1 million as its share of the settlement by the courts. The award was reported as other income in the first quarter of the Fiscal year 2002.

Cash Flow Information

Cash paid for interest during fiscal years 2003, 2002 and 2001 was $1.8 million, $1.7 million, and $1.6 million, respectively.

Cash paid for income taxes during fiscal years 2003, 2002 and 2001 was $801,377, $1,224,802, and $677,650, respectively.

Stock Based Compensation

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 as of 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

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IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

pro forma disclosures of net income and earnings per share as if the fair value method had been applied.

The Company accounts for the Incentive Stock Option Plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based compensation costs are reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

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 2003, 2002 and 2001, respectively: expected volatility of 80%, 86.2%, and 86.2%; risk-free interest rate of 5.23%, 4.32%, and 5.16% ; expected lives of five years; and no expected dividends.

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 377,200, 379,400 and 379,400 shares of common stock as of August 31, 2003, 2002 and 2001, respectively. These options were excluded because the option exercise price was greater 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.

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IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, accounts payable and long-term debt - the carrying amount approximates fair value.

New Financial Accounting Pronouncements

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 implementation of SFAS No. 141 does not have a material impact on the Company’s financial position or results of operations.

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which became become effective for fiscal years beginning after December 15, 2001. The implementation of SFAS No. 142 in Fiscal 2003, did not have a material impact on its financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 replaces SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. SFAS No. 144 requires long-lived assets be measured at the lower of selling amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS No. 144 became effective for consolidated financial statements issued for financial years beginning after December 15, 2001. The adoption of SFAS No. 144 did not have a material impact on the Company’s financial statements.

In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment to SFAS No. 123". This statement provides alternative methods of transition for companies that elect to voluntarily change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company currently does not intend to change to the fair value based method of accounting for stock-based compensation, but will adhere to the disclosure requirements of the Statement. The Company has adopted the disclosure requirements for the third quarter of Fiscal 2003.

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Table of Contents

IMPRESO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

3.

INVENTORIES:

Inventories consisted of the following: