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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, 1997
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 0-26774
---------------------------------------------------------
TST/Impreso, Inc.
(Exact name of registrant as specified in its charter)
---------------------------------------------------------
Delaware 75-1517936
(State or other jurisdiction of (I.R.S. Employer
or 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 21, 1997, based upon the closing sale price of the
Common Stock as reported on the Nasdaq National Market, was approximately
$43,665,435.
There were 5,292,780 shares of the registrant's Common Stock outstanding as of
November 21, 1997.
List hereunder the documents, all or portions of which are incorporated by
reference herein and the Part of the Form 10-K into which the document is
incorporated: Proxy Statement to be filed with respect to the Registrant's
Annual Meeting of Stockholders to be held on January 27,1998---Part III.*
* As stated under various items of this Annual Report, only certain specified
portions of such document are incorporated by reference herein.
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PART 1
ITEM 1. BUSINESS
GENERAL
TST/Impreso, Inc. was founded in 1976 as Texas Stock Tab, Inc., in Dallas,
Texas, as a Texas corporation. The Company changed its name to TST/Impreso,
Inc. in 1990 to minimize the restrictive perception of the Company as a
regional supplier of only one type of paper product. Now headquartered in the
Coppell suburb of Dallas, TST/Impreso, Inc. and subsidiaries (the "Company")
is a medium-size manufacturer and distributor to dealers and other resellers of
various paper products for commercial and home use in domestic and
international markets. Approximately 98% of the Company's total output is
initially sold domestically. Independent resellers purchase and may further
distribute the products internationally. Through its three manufacturing
facilities and 48 public warehouse locations throughout the United States and
in Quebec, Canada, the Company manufactures and distributes its products under
its own label, generic labels and private labels. The Company operates in a
very competitive industry segment. The Company has strategically located its
distribution points so as to enable its products to be delivered to customers
in most major cities in the United States within 24 hours. The Company has
approximately 3,000 customers ranging in size from small business forms dealers
to large office product wholesalers with multiple offices and branches. An
increasing segment of the customer base has been the large and medium mass
merchants, including computer and office superstores. The Company's primary
method of generating sales contacts is through its own sales force,
manufacturers' sales representatives, extensive marketing programs, referrals
and reputation.
In April 1993, the Company emerged from a Chapter 11 bankruptcy proceeding
instituted by it in November 1992. The filing was primarily due to the
Company's inability to renegotiate its line of credit agreement with its
primary lender regarding amounts owed to the lender under the Company's
guarantee of indebtedness for a subsidiary operating as a business consumable
wholesaler in which the Company had a majority interest. The subsidiary was
simultaneously liquidated in a Chapter 7 bankruptcy. See "Management's
Discussion And Analysis of Financial Condition And Results of Operations."
On October 12, 1995, the Company closed the offering of 1,100,000 shares of
its Common Stock to the public at $6.00 per share. On November 14, 1995, the
Company closed the sale of an additional 147,730 shares of its Common Stock
pursuant to the Underwriters' over-allotment option. The proceeds of the
offering were used for repayment of indebtedness in the approximate amount of
$4.9 million and the remainder was used for general corporate and working
capital purposes.
PRODUCTS
The Company operates in the hard copy supply market, which encompasses those
products used with
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a hard copy output or "imaging" device. The Company originally converted
continuous stock forms, a paper product known then in the industry as stock
tab, and changed its product mix, as technology changed, to include other paper
products such as fax paper. Recent advances in printer hardware and imaging
material technology have changed the hard copy industry again. While demand for
the stock forms segment of the business has been in decline, growth
opportunities for other products, such as cut sheet applications, have
significantly increased. In response to these industry trends the Company
refocused its manufacturing strategy. The Company has purchased high volume
commodity sheeters to batch sheet paper products instead of purchasing precut
sheeted products directly from mills. Sheeting applications can range from
simple cut sheet paper to sophisticated film products. The Company has been
expanding its capabilities to capture growth opportunities in the paper cut
sheet market. Since certain types of the equipment that the Company is
acquiring to convert paper materials into sheets can also convert film, the
Company believes it can maximize its efficiency by entering the film market.
See "New Products: Special Surface Sheeted Products, and Manufacturing." One of
the improvements currently under way at the Texas facility is the construction
of a clean room environment for the conversion of special surface sheeted
products. The special surface sheeted products that the Company intends to
manufacture include technical papers and film imaging materials. The inclusion
of these new imaging materials in the Company's product line has the potential
to expand the Company's avenues of distribution. The Company anticipates
entering new market channels such as copy service industries and grocery
store/pharmacy chains. The Company's product line during the fiscal year ended
August 31, 1997, ("Fiscal 1997") consisted of: (i) continuous computer stock
business forms, (ii) thermal facsimile paper, (iii) cut sheet paper for use in
laser printers, copying machines, and plain paper facsimile machines, and (iv)
cut sheet paper for use in ink jet printers. New products slated for production
in the fiscal year ending August 31, 1998, ("Fiscal 1998") are special surface
sheeted products including transparency film, glossy papers such as digital
photo paper, and T-shirt transfers; point-of-purchase, ATM, and adding
machine rolls in both thermal and plain paper; and a business stationary line.
Continuous Computer Stock Business Forms. The Company produces a wide variety
of standard continuous computer stock business forms in various types of papers
(bond, recycled, carbon and carbonless, and groundwood papers), formats
(printing for readability and contrast) and basis weights. Upon request, the
Company occasionally produces customized forms for larger customers. To ensure
high quality printing, the Company primarily uses wet offset presses, which
yield better clarity and definition than dry printing. Raw paper stock is
quality control-tested prior to and during production to ensure correct tensile
strength, capacity, thickness, moisture content and finish.
Thermal Facsimile Paper. The Company manufactures thermal facsimile paper
under the IMPRESO(R) brand name. The thermal facsimile papers manufactured by
the Company are suitable for use with all original equipment manufacturers'
("OEMs") 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. In prior years the Company purchased cut sheet products
mill-direct. With the purchase of batching sheeting equipment, the Company
has begun converting its own cut sheet products including
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IMPRESO(R) Lazer Cut Sheets(R). Lazer Cut Sheets are designed specifically for
use with all types of copying machines, laser printers and plain paper
facsimile machines.
Cut Sheet Paper for use in Ink Jet Printers. The Company offers ink jet paper
for use in ink jet printers which use a pattern of dots to form characters. The
print head in an ink jet printer uses an ultra fine nozzle to spray droplets of
electrically-charged, low viscosity ink onto printing paper to form characters,
symbols or graphics. The high density character resolution results in crisp
character definition. There are 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.
Un-coated ink jet paper is primarily used for traditional monochrome
applications.
Value-Added Cut Sheet Paper. In the first calendar quarter of 1996, the
Company purchased a prototype sheeter that was to be used with new and
existing presses to enable the Company to produce a specific line of
"value-added cut sheet" paper, sheets that were cut, printed and/or perforated
in one process, e.g., billing statement forms printed on both the front and
back and perforated to provide a remittance slip. Although product
availability was expected by management in October 1996, due to design problems
with the first prototype machine, two other contracts for similar machines were
canceled and the Company ceased manufacturing this product line. The prototype
machine was redesigned into a batching sheeter and is currently operating
converting raw materials into cut sheet products.
NEW PRODUCTS
Special Surface Sheeted Products. In Fiscal 1998, the Company intends to
introduce a line of special surface sheeted products. These products,
manufactured from paper or film, have delicate surfaces that are extremely
sensitive to scratching or marring and require state-of-the-art equipment for
processing and handling. See "Manufacturing." The special surface sheeted
products will be marketed under one or both of the TST/Impreso, Inc. and
International Business Machines ("IBM") brands. See "Trademark Licenses." The
special surface sheeted products the Company intends to initially offer are:
Digital Photo Ink Jet Paper. Prints images from digital cameras, photo
CD's, the Internet, or desk top scanners. Special treatment renders vivid
colors and sharp print. Coating gives a glossy finish which resists
fading. Extra-heavy paper feels like a real photograph. The second side
is matte coated for text and graphics so photos can be printed with a name
and address on the back for postcards.
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. Tough, durable, curl-free film is stable and
long lasting for printing any ink generated image. High Gloss finish
prints brilliant color images and second side matte
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coated prints text and graphics.
Transparency Film for Ink Jet Printers. Clear film specially coated for
smudge/bleed-free color or black ink jet imaging.
Transparency Film for Copier & Laser Printers. Overhead transparencies can
be created using a plain paper copier and this film. Low haze level
transparencies that lay flat on and off the projector.
Transparency Film for Color Laser Printers. Designed specially for color
laser applications, unique coating controls absorption of color creating
high quality full color overhead transparencies.
T-Shirt Transfers. In the beginning of Fiscal 1998, the Company also
started selling T-shirt transfers under the Impreso brand. This product
will allow anyone with a computer and ink jet printer to create
personalized designs for applications on various cloth items. Although
introduced into typical mainstream office product chains of distribution,
this product is suitable for other retail markets. Penetration of new
channels of distribution by this product will open the door for the Company
to consider manufacturing complementary products appropriate for certain
channels which can be converted by the Company's sheeting and slitting
equipment. See "Manufacturing."
Rolled Paper Products. The equipment which converts thermal facsimile paper can
also convert rolled paper products. The Company started the conversion of
point-of-sale, ATM, and adding machine rolls in both thermal and plain paper
under the Impreso brand name in October 1997. The Company has expanded its
slitting capabilities at its West Virginia Plant with the purchase of
additional machinery to accommodate the conversion of these products.
Business Stationary Line. This product line is in the initial design phase.
Product rollout should occur in the second quarter of Fiscal 1998. This product
will be distributed for sale at the stationary retail level.
MARKETING AND DISTRIBUTION
The Company markets its products to approximately 3,000 customers through its
own sales force and established manufacturers' representatives. The Company's
targeted customers are business consumable and office machine "dealers", and
large and medium mass merchants, including computer and office superstores.
The Company is seeking to diversify its customer base and distribution
channels. The incorporation of non-traditional but related product categories
in the Company's expanding product line may facilitate the Company's access to
different distribution channels such as copy service industries and grocery
store/pharmacy chains.
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The Company presently has 51 distribution points (48 public warehouses and
three plants), which enable the Company to deliver products to most major
cities in the United States within 24 hours. The Company'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.
The Company's current customers are comprised of the following:
Business Forms Dealers. Business Forms Dealers are typically businesses which
primarily buy and resell various types of business forms.
Wholesale Stationers. Wholesale Stationers supply a large variety of office
products to office product dealers. The wholesale stationers do not sell
directly to the end-user.
Office Products Dealers. Office Products Dealers or businesses generally
purchase much of their products from the wholesale stationers, but often
negotiate directly with manufacturers such as the Company.
Paper Merchants. Paper Merchants sell all types of papers to printers and
dealers, and directly to end-users.
Consumer Electronics Stores. Consumer Electronic Stores sell retail to the
end-user in a broad spectrum electronics environment.
Mass Merchants. Mass Merchants are retail sections of department, grocery or
drug stores that sell computer, copier and facsimile-related supplies.
Computer Superstores. Computer Superstores sell computer products and their
accessories retail.
Wholesale Clubs/Office Superstores. Wholesale Clubs/Office Superstores, which
comprise the fastest growing segment of the office products market, sell large
volumes of inventory near wholesale prices to end-users and dealers and do not
generally provide the credit, delivery, and other types of services support
that the wholesale stationers provide their customers.
Original Equipment Manufacturers (OEMs). These manufacturers make the business
machines in which paper products are used. Many OEMs have their own privately
labeled consumables to market as a secondary sale to their business machines,
such as copiers, printers and facsimile machines.
Catalog Sales. Catalog companies publish their own catalogs and send them to
customers, who then order merchandise by telephone or facsimile and have it
delivered.
Buying Groups. These are groups of dealers, ranging from ten to 400 members,
that combine their
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buying power to receive, among other things, volume discount pricing and rebate
incentives from manufacturers.
Although the Company 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 the Company and any of
its customers. One single customer, Staples, Inc., represented 22% of the
Company's revenues during the fiscal year ended August 31, 1996. However, that
customer only represented 9% of the Company's revenues for Fiscal 1997. The
decrease in sales to Staples resulted from declining prices in the industry and
Staples decision to purchase from other vendors offering pricing levels below
the Company's. Management anticipates that the decline of purchases by
Staples may significantly reverse as the Company begins supplying new types and
brands of products to the marketplace, although there can be no assurance
purchases by Staples will increase, or if increased will result in significant
impact on the Company's revenues. No single customer represented 10% or more
of the Company's revenues during Fiscal 1997. The Company believes the loss of
any single customer would not have a material adverse effect on the Company's
business.
MANUFACTURING
The Company maintains a quality assurance team which participates in the
manufacturing and packaging of all of the Company's products. The Company
continues to monitor any new product requirements of its customers and to
assess what new equipment or equipment modifications may be required to produce
such products. The Company manufactures computer stock forms at each of its
three manufacturing facilities in Coppell, Texas; Fontana, California; and
Kearneysville, West Virginia. The Company's equipment for its continuous
computer stock business forms product line includes rotary presses and
collators. The rotary presses range in size from 22 inch cylinder x 32 inch web
to 25.5 inch cylinder x 36 inch web and provide the Company with the ability to
produce a broad spectrum of form sizes. Each piece of machinery requires a
skilled operator and, in certain cases, support personnel are required. The
Company's equipment is well-suited to produce nearly all of the computer
business stock forms products required by a forms distributor or retailer. The
Company also operates sheet presses similar to a quick print.
Since 1989, the Company has operated its rewinder slitters used for the
conversion of thermal facsimile paper at the Company's manufacturing facility
in Texas. The thermal facsimile paper was then distributed to the other plants
and public warehouses for further distribution. In Fiscal 1998, the Company
added slitting capabilities on the East Coast at its West Virginia plant.
The Company's recently acquired sheeting equipment is currently converting
product at the Texas and West Virginia plants. Substantially all printing and
manufacturing equipment used in the manufacture of the Company's products is
owned by the Company, subject to liens.
In December 1997, the Company expects delivery of a state-of-the-art sheeting
and packaging
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system it designed with the manufacturer to batch sheet and package products
with special surfaces including transparency film, glossy papers such as
digital photo paper, and T-shirt transfers. These products require machines
that do not scratch or mar the surface of the product during the conversion and
packaging process. A special clean room is being constructed at the Texas
facility to house the special surface cut sheet manufacturing. The Company's
speciality sheeting operation will incorporate the most modern technology
available in the industry. The room's humidity and temperature must be
maintained at exact levels to minimize static electricity which interferes with
conversion of the products. The micro processing control system allows for
tight set points, maintaining a uniform and exact atmosphere in the room. This
equipment also provides an air flow with positive pressure which injects a
greater volume of air into the room than exists outside. This positive pressure
effect suspends air borne particles, and reduces their attraction to paper and
film which taints these product surfaces.
The Company is considering applying for the ISO 9001 Certification in Fiscal
1998. The ISO 9001 Certification is a world wide certification representing
the consistent, high quality of the products produced by a manufacturer.
Receipt of such certification will create opportunities for sales for the
Company from purchasers who otherwise may not purchase from an uncertified
manufacturer. However, there can be no assurance that the Company will receive
such certification, or that such certification will create additional revenue
for the Company.
RAW MATERIALS
An adequate supply of raw materials is essential to the Company's business. The
Company purchases raw paper, coated thermal facsimile paper, carbon and
carbonless paper (consisting of a wide variety of weights, widths, colors,
sizes and qualities), packaging and other supplies in the open market from a
number of different companies around the world. The Company believes that it
has adequate sources of supply of raw materials to meet the requirements of its
business. Raw materials represented 44% of total inventory at August 31, 1997.
The introduction of film products into the Company's line will require the
Company to source raw materials not traditionally purchased by the Company.
These raw materials are readily available from national and international
manufacturers. The Company believes that the use of raw materials other than
paper will make the Company's profit margins less vulnerable to price
fluctuations associated with supply and demand cycles in the paper industry.
The Company has approved two suppliers for its unconverted film raw materials.
These suppliers are among the top producers of quality film products in the
world. The Company believes that it has a good relationship with all of its
current suppliers.
SEASONALITY
The Company may be subject to certain seasonal fluctuations in that order for
products may decline in summer months. However, the Company does not believe
that such fluctuations have a material adverse effect on its results of
operations.
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BACKLOG
The dollar value of the order backlog as of August 31, 1997 and August 31,
1996, was estimated to be $606,000 and $1.3 million, respectively. The
Company'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 decrease in backlog is
related to an industry oversupply of raw materials, market reactions to such
inventory oversupplies, and a reduction in unit sales due to generally
depressed market conditions.
COMPETITION
The Company is subject to competition from a number of other business
organizations, some of which have substantially greater financial, human and
other resources than the Company. The Company currently competes principally
with paper manufacturers like the Company which 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 have caused the major direct-selling companies, which are
much larger than the Company, to sell direct and to dealers. In some cases,
this has led to customers of the Company reducing their selling prices to
compete with these dealers. In turn, this has caused increased competition
among companies selling products through dealers. In addition, a consolidation
among entities in this market has created greater competition for the Company.
In the changing environment of the hard copy supply industry, advancing
technology has contributed to the competition as companies must obtain new
machinery to convert those business consumables required by the explosion of
computer technology. The Company has redirected its manufacturing strategy to
begin conversion of products that are higher margin technical products. This
will also position the Company 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 growth in unit sales. Since the
Company is moving into non-paper products, more sophisticated technical
products, and looking to penetrate new distribution channels with its expanding
product lines, management believes that its analysis of which companies it
competes with will change in the coming years as the fallout of the paper
industry consolidation creates new hybrid entities. The Company believes that
it 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; a larger number of
items providing customers cost-effective, efficient purchasing and volume
discounts; and by providing high-quality products and customer-oriented
services.
INFORMATION SYSTEMS UPGRADES
In November 1997, the Company purchased a new AS/400 computer to be installed
in the first quarter of calendar year 1998 to improve the Company's
information processing. This hardware upgrade is an initial step by the
Company in reaction to year 2000 considerations. The Company
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anticipates minimal costs for year 2000 bridge software. The Company believes
the hardware upgrade will not affect the current software system in place. The
Company will enhance its data storage reliability, processing speed, ease of
PC integration with mainframe data, and EDI and Internet order taking data
communications with this new computer.
TRADEMARKS
The Company uses the trademark IMPRESO, a Spanish word meaning printed matter,
for certain products the Company manufactures and distributes. The trademark
is registered in the United States, which registration was renewed in August
1995, and is effective until August 1999. The IMPRESO trademark is also
registered in Canada, the United Kingdom, France, Benelux and Italy, which
registrations are subject to renewal commencing in October 1997. The Company
believes that the IMPRESO trademark has significant name recognition and is
important in marketing and achieving visibility of the Company's products. The
goodwill value associated with the name IMPRESO has been pledged as an asset to
the Company's current primary secured lender under the Company's revolving line
of credit.
TRADEMARK LICENSES
The Company entered into a non-exclusive Trademark Licensing Agreement with
IBM on April 30, 1997, involving the manufacture and distribution of a selected
line of paper products within the United States, Canada, and Mexico. The
Company is a participant in a strategic business alliance with IBM, along with
other IBM Licensees, to bring IBM branded paper products into the
marketplace. The initial products the Company will convert under the IBM brand
name are gloss and matte coated ink jet paper, gloss opaque ink jet film,
digital photo ink jet paper, ink jet and laser transparencies, fanfold computer
paper and facsimile paper. The IBM Trademark is an instantly recognized symbol
denoting quality and value worldwide. The stringent manufacturing specif-
ications and quality controls contractually imposed by IBM on the Company are
expected to assure consumers of premium quality goods, thereby maintaining the
integrity and value of the IBM Trademark. Management believes that brand name
identification is an effective tool for penetration of market share.
SERVICE AND SUPPORT
The Company believes that customer service is an important factor in product
sales and customer satisfaction. Service and support include the Company's own
in-house trucking that back-hauls goods for other entities, which reduces
transportation costs and improves customer service. An in-house graphics
department designs and prepares layouts of packaging and produces negatives
which allows the Company speed and flexibility when bringing new products or
packaging into the marketplace. The Company also sells its graphics
capabilities to its customers. The Company's customer services also include a
technologically advanced computer system which sends by
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facsimile a bill of lading to the appropriate distributing warehouse and an
order acknowledgment to the receiving customer when an order is entered by a
customer service representative. The Company's computer system automatically
monitors and factors inventory levels at each warehouse, calculates the amount
of raw materials the Company must purchase and identifies which of the
Company's plant locations will manufacture an order.
The Company also has a three person collection and credit department. Payment
terms are generally 1% for payment within 15 days, net 30 days. Skilled,
knowledgeable staff evaluate extensions of credit and make written and verbal
requests for payment from those customers whose invoices are not paid within
agreed payment terms. The Company also maintains in-house counsel who assists
the credit department in difficult collections.
The Company offers a 120-day warranty on all of its products. To date, warranty
expense has been minimal.
ENVIRONMENTAL REGULATION
The Company does not believe that compliance with any environmental regulations
that may be applicable to it will have a material effect on the Company's
capital expenditures, earnings or competitive position.
EMPLOYEES
At August 31, 1997, the Company had 141 full-time employees. Of these
individuals, 88 were engaged in manufacturing, 22 were engaged in sales and
marketing, and 31 were administrative and clerical personnel. None of the
Company's employees are currently covered by a collective bargaining agreement.
The Company considers its employee relations to be good due to an
organizational structure which encourages individual initiative as well as team
work. Approximately 72% of all salaried employees have been with the Company
more than seven years.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected annually by the Board of
Directors. The executive officers, their age and positions within the Company
at August 31, 1997, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Marshall D. Sorokwasz 54 Chairman of the Board,
President, Treasurer,
and Chief Executive
Officer
</TABLE>
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<TABLE>
<S> <C> <C>
Richard D. Bloom 65 Senior Vice President of
Operations and Director
Donald E. Jett 53 Secretary and Director
John L. Graves 53 Vice President of Manufacturing
Jeffrey W. Boren 32 Vice President of Sales, Marketing
Susan M. Atkins 48 Vice President of Finance
and Chief Financial Officer
</TABLE>
Marshall D. Sorokwasz is one of the founders of the Company, and has been its
President, Chief Executive Officer, and a Director since its organization in
1976.
Richard D. Bloom is one of the founders of the Company, and has been its Vice
President and a Director since inception.
Donald E. Jett is one of the founders of the Company, and has been its
Secretary and a Director since inception.
John L. Graves was promoted to Vice President of Manufacturing in June 1986.
Prior to being elected Vice President, Mr. Graves was Operations Manager with
the Company since August 1981.
Jeffrey W. Boren has been Vice President of Sales and Marketing since March
1995. From March 1994 to March 1995, he was the National Sales Manager; prior
to that, he held various sales positions within the Company.
Susan M. Atkins has been Vice President of Finance and Chief Financial Officer
of the Company since December 1995. Ms. Atkins was Controller of the Company
prior to her election as Vice President of Finance and Chief Financial Officer.
ITEM 2. PROPERTIES
As of August 31, 1997, the Company operated three manufacturing plants
encompassing an aggregate of approximately 166,890 square feet of space. The
Company owns its manufacturing plants in Coppell, Texas, and Kearneysville,
West Virginia. The West Virginia property is encumbered by mortgages maturing
in 2023. The Company's plant in Fontana, California is occupied pursuant to a
month-to-month tenancy, with a monthly rental payment of $6,500. The Company's
executive offices are located at the Coppell, Texas manufacturing facility
which is approximately 60,000 square feet, and is unencumbered. The Company
maintains a regional sales office in Huntington, New York pursuant to a lease
expiring April 30, 2000. As of August 31, 1997, the Company utilized 48
warehouses. Warehousing costs incurred for the public warehouses utilized
throughout the United States and in Quebec, Canada by the Company were
approximately $536,000 for Fiscal 1997. Annual mortgage payments for Fiscal
1997, including interest, and minimum lease
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payments relating to the Company's facilities were approximately $108,000 and
$100,000, respectively. The Company believes its facilities are in good
condition as well as suitable and adequate for its current business needs.
Management estimates that, as of August 31, 1997, the Company was operating at
35% capacity for all of the products manufactured by the Company, which will
allow the Company to acquire additional business with no immediate capital
investment.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
TST/Impreso, Inc.'s Common Stock is quoted on the Nasdaq National Market
("NNM") under the symbol "TSTI" The high and low closing prices for the
Company's Common Stock, as reported on the NNM, are as follows:
<TABLE>
<CAPTION>
Price Range
---------------------------
High Low
<S> <C> <C>
1996 Fiscal Year and Period
- ---------------------------
First quarter (Oct.5, 1995-Nov.) $7.1250 $ 6.1250
Second quarter (Dec.-Feb.) 7.0000 6.3750
Third quarter (Mar.-May) 8.4375 6.0000
Fourth quarter (June-Aug.) 10.0000 5.5000
</TABLE>
<TABLE>
<CAPTION>
Price Range
---------------------------
High Low
<S> <C> <C>
1997 Fiscal Year and Period
- ---------------------------
First quarter (Sep.- Nov.) $7.875 $ 5.375
Second quarter (Dec.-Feb.) 9.375 7.625
Third quarter (Mar.-May) 12.750 6.500
Fourth quarter (June-Aug.) 16.625 12.625
</TABLE>
On November 21, 1997, the closing price for the Company's Common Stock on NNM
was $8.25.
12
<PAGE> 14
As of November 21, 1997, the Company's Common Stock was held by approximately
783 stockholders of record, including holdings through nominee or street name
accounts with brokers.
The Company has not paid any dividends on the Common Stock since inception and
does not intend to pay any dividends to its stockholders in the foreseeable
future. The Company currently intends to reinvest earnings, if any, in the
development and expansion of its business. 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 financial position of the Company,
general economic conditions, and other pertinent factors.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data of the Company as of and
for the five years ended August 31, 1997. The historical financial data as of
August 31, 1997, has been derived from the historical financial statements of
the Company, which financial statements have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report included
elsewhere herein. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements appearing elsewhere in this
document.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (a)
Years Ended August 31,
- -------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated
Statement of
Operations Data:
- ----------------
Net Sales $33,634,248 $47,722,988 $37,036,456 $25,924,000 $26,086,038
- ----------------------------------------------------------------------------------------------------------
Operating income
(loss) before
extraordinary item (476 ,755) 3,005,459 2,480,004 577,695 (490,620)
- ----------------------------------------------------------------------------------------------------------
Extraordinary item
(net of taxes) --- 296,291 (c) 523,326 (c) --- 4,283,467 (b)
- ----------------------------------------------------------------------------------------------------------
Net Income (loss) (476,755) 3,301,750 3,003,330 577,695 3,792,847
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) per
common share:
- -------------
Income (loss) before
extraordinary item (0.09) 0.59 0.62 0.14 (0.12)
- ----------------------------------------------------------------------------------------------------------
Net Income (loss) (0.09) 0.65 0.75 0.14 0.95
- ----------------------------------------------------------------------------------------------------------
Consolidated
Balance Sheet Data:
- -------------------
Total assets 18,225,900 17,016,740 14,586,211 11,433,934 11,438,597
- ----------------------------------------------------------------------------------------------------------
Long-term debt
(excluding current
maturities) 1,007,038 1,091,789 3,602,917 5,461,747 6,715,071
- ----------------------------------------------------------------------------------------------------------
Stockholders'
Equity $12,883,430 $12,978,058 $3,725,825 $722,495 $144,800
- ----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 15
Notes to Selected Financial Data
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Settlement of unsecured creditors and restructuring of notes payable.
(c) Early extinguishment of debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HISTORICAL
From 1978 to 1991, the Company owned a majority interest in Origami, Inc.
("Origami"), a wholesaler of business consumables. In 1989, the Company and
Origami executed a loan agreement with a secured lender which was
cross-collateralized by the assets of both the Company and Origami as security
for revolving loans to each. During most of its existence, Origami operated at
a loss. Origami filed for protection under Chapter 11 of the United Sates
Bankruptcy Code (the "Bankruptcy Code") in June 1991. Such Chapter 11
proceeding was converted to a liquidation under Chapter 7 of the Bankruptcy
Code in August 1991. The liquidation of Origami resulted in a $3 million
shortfall to the Company's lender and an uncollected $5.5 million receivable
from Origami to the Company. The deficiency on the Origami portion of the
loans was added to the Company's borrowing base with such lender, and the
resulting losses on a combined basis far outweighed the borrowing base which
the Company's collateral could support. On November 10, 1992, the Company
filed for protection under Chapter 11 of the Bankruptcy Code, primarily as a
result of the Company's inability to renegotiate its line of credit agreement
with its lender and to settle disputes regarding amounts owed to the lender
under the Company's guarantee of the indebtedness of Origami to the lender. In
April 1993, the Company's Amended Joint Plan of Reorganization (the "Plan of
Reorganization") was confirmed by the United States Bankruptcy Court. The
Company has completed payment of substantially all of its prepetition
obligations under the Plan of Reorganization. The Company has been operating
in conformity with and meeting the remaining payment terms of the Plan of
Reorganization.
14
<PAGE> 16
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1997, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 1996
Net Sales--- Net sales for Fiscal 1997, decreased $14.1 million, or 29.5%, to
$33.6 million as compared to $47.7 million for the year ended August 31, 1996,
("Fiscal 1996") as a result of the market adjustment to increased raw material
paper inventories, an unfavorable pricing environment, and the resulting loss
of sales to Staples, Inc. which represented 22% of sales in Fiscal 1996, as
compared to 8.5% of sales for Fiscal 1997. Management believes that the
decline of purchases by Staples may reverse significantly as the Company begins
supplying Staples with the new brands and types of products the Company intends
to manufacture in Fiscal 1998. Sales of continuous forms for Fiscal 1997,
decreased by $15 million, or 38%, to $25 million as compared to $40 million for
Fiscal 1996, while cut sheet products increased 35%, or $1.5 million, to $5.8
million for Fiscal 1997, as compared to $4.3 million in Fiscal 1996.
Gross Profit--- Gross profit for Fiscal 1997, decreased $5.7 million, or
60.7%, to $3.7 million as compared to $9.4 million in Fiscal 1996. The decrease
was primarily the result of decreased selling prices due to depressed market
conditions. The Company's gross profit margin for all products in Fiscal 1997,
was 11.0% as compared to 19.8% for Fiscal 1996. The decrease in the gross
profit percentage reflected the decreased selling prices of the Company's
finished goods from the levels of Fiscal 1996. Gross profit margins were
further affected by the Company's transition from continuous form paper
products to cut sheet products, which increased costs as a percentage of
sales.
Selling, General and Administrative Expenses--- SG&A expenses for Fiscal 1997,
were $4.1 million, or 12.2% of net sales, as compared to $4.6 million, or 9.5%
of net sales for Fiscal 1996. SG & A expenses as a percentage of net sales
increased during this period, primarily because of reductions in sales,
expansion of Company operations, and costs associated with implementing the
sale of new brands and types of products.
Interest Expense--- Interest Expense decreased by approximately $102,000, or
27.1%, to approximately $275,000 for Fiscal 1997, as compared to $378,000 for
Fiscal 1996. This decrease is primarily attributable to the early
extinguishment of prepetition secured debt.
Income Before Taxes And Extraordinary Gain--- Income (loss) before taxes and
extraordinary gain for Fiscal 1997, was approximately ($484,000) as compared to
approximately $4.6 million for Fiscal 1996, a decrease of $5.0 million, or
110.6%. The decrease for Fiscal 1997, is primarily due to decreased sales
volume and decreased gross profits.
Extraordinary Gain--- The Company recorded no extraordinary gains for Fiscal
1997, as compared to an extraordinary gain totaling $296,000, net of related
income tax expense of $158,000, for Fiscal 1996. The gain in Fiscal 1996,
resulted from the Company's early payment of prepetition notes payable for a
discounted amount.
15
<PAGE> 17
Income Taxes--- The Company had no provision for income taxes for Fiscal 1997,
as compared to $1.6 million for Fiscal 1996. The decrease was primarily due to
decreased pre-tax profits.
Cash used in operating activities was $3.6 million for Fiscal 1997, as compared
to $1.3 million in Fiscal 1996. Cash provided by operating activities for
Fiscal 1997, was $1.3 million, as compared to $5.2 million in Fiscal 1996. The
increase in the Company's net cash used in operations primarily related to the
reduction in net income, the increase in the Company's raw material
inventories, and the decrease in accounts payable. The Company increased raw
material inventories to prepare for new brands and types of product
introductions, and increased purchases to capture the favorable pricing levels
of raw materials prior to anticipated increases.
Net cash used in investing activities was $1.2 million for Fiscal 1997, as
compared to $1.1 million used in investing activities for Fiscal 1996. The
Company's net cash used in investing activities primarily related to the
purchase of new equipment, and stock investments.
Cash provided by financing activities was $3.0 million for Fiscal 1997, as
compared to $6.0 million in Fiscal 1996. Cash used in financing activities was
$119,000 for Fiscal 1997, as compared to $6.5 million used in Fiscal 1996. The
Company's increase in net cash provided by financing activities in Fiscal 1997,
primarily related to increased borrowings on its line of credit.
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1996, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 1995
Net Sales--- Net sales for Fiscal 1996, increased $10.7 million, or 28.9%, to
$47.7 million as compared to the year ended August 31, 1995, ("Fiscal 1995") as
a result of increased volume because of the expansion in the Company's customer
base and increased sales.
Gross Profit--- Gross profit for Fiscal 1996, increased $1.2 million, or
14.3%, to $9.4 million as compared to $8.2 million in Fiscal 1995. The increase
was primarily the result of increased sales. The Company's gross profit margin
for Fiscal 1996, was 19.8% as compared to 22.3% for Fiscal 1995. The decrease
in the gross profit percentage was primarily the result of reduced selling
prices and costs increasing as a percentage of net sales.
Selling, General and Administrative Expenses--- SG & A expenses for Fiscal
1996, were $4.6 million, or 9.5% of net sales, as compared to $4.2 million, or
11.2% of net sales, for Fiscal 1995. SG & A expenses as a percentage of net
sales declined during this period, primarily because of reductions in bonus
expense.
Interest Expense--- Interest expense decreased by $642,000, or approximately
63.0%, to $378,000 for Fiscal 1996, from $1,020,000 for Fiscal 1995. This
decrease is primarily attributable to the pay down of the Company's line of
credit to $138,000 as of August 31, 1996, as compared to $3,843,000 as of
August 31, 1995.
Income Before Taxes And Extraordinary Gain--- Income before taxes and
extraordinary gain for Fiscal 1996, was $4.6 million as compared to $3.1
million for Fiscal 1995, an increase of $1.5 million, or 48.2%. The increase
for Fiscal 1996 is primarily due to increased sales volume, increased gross
profits, improved operating efficiencies, reduced interest expense and a
decline in other SG & A expenses as a percent of net sales.
Extraordinary Gain--- The Company recorded an extraordinary gain totaling
$296,000, net of related income tax expense of $158,000, for Fiscal 1996, and
an extraordinary gain totaling $523,000, net of related income tax expense of
$298,000, for Fiscal 1995. The gains resulted from the Company's early payment
of prepetition notes payable for discounted amounts.
Income Taxes--- The Company's provision for income taxes was $1.6 million for
Fiscal 1996, as compared to $595,000 for Fiscal 1995. The increase was
primarily due to increased pre-tax profits and utilization of net operating
loss during Fiscal 1995. The effective tax rate for Fiscal 1996 was 34.1% as
compared to 22.9% for Fiscal 1995.
16
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $602,000 or 25.4% from $2.4 million in
Fiscal 1996 to $1.8 million in Fiscal 1997, primarily due to the Company's
investment in the common stock of an unrelated publicly traded Company.
Borrowings under the Company's line of credit increased $2.7 million, or 1,949%,
to $2.8 million at August 31, 1997, as compared to $138,000 at August 31,
1996, primarily as a result of the Company increasing its raw material
inventories to prepare for new product introductions, and to capture favorable
pricing levels of raw materials prior to anticipating increases. Inventories
increased $1.5 million, or 24%, from $6.3 million at August 31, 1996, as
compared to $7.9 million at August 31, 1997.
Working capital was constant at $9.9 million on August 31, 1997, as compared to
$9.9 million at August 31, 1996.
In May 1996, the Company entered into an agreement with a bank for a one year
revolving line of credit, which is secured by, among other things, inventory,
trade receivables, equipment and a personal guarantee of Mr. Sorokwasz,
Chairman of the Board and President of the Company, and Trustee of the trust
which is the largest single shareholder of the Company. Available borrowings
under this line of credit, which accrues interest at the prime rate of interest
plus 1% (9.5% at August 31, 1997), are based upon specified percentages of
eligible accounts receivable and inventories. As of August 31, 1997, there was
a $2.2 million borrowing capacity remaining under the $5 million revolving line
of credit. The revolving credit line, which matured in May 1997, has been
17
<PAGE> 19
automatically renewed under identical terms until May 1998. In February 1998,
the Company will solicit bids from its existing and other financial
institutions in order to negotiate the most favorable terms on its revolving
credit facility. Management believes it will be able to secure such financing
on terms at least as favorable as its existing revolving line of credit.
The Company believes that the funds available under the revolving credit line
facility, cash and cash equivalents, trade credit, and internally generated
funds will be sufficient to satisfy the Company's requirements for working
capital and capital expenditures for at least the next twelve months. Such
belief is based on certain assumptions, including the continuation of current
operations of the Company and no extraordinary adverse events, and there can be
no assurance that such assumptions are correct. In addition, expansion of
Company operations due to demand for the new types and brands of products
manufactured by the Company in Fiscal 1998, may require the Company to obtain
additional capital to pursue an acquisition or for the addition of new
manufacturing facilities. If that should occur, the funds required for the
potential acquisition or new facilities would be generated through additional
security offerings or additional debt. There can be no assurance that any
additional financing will be available if needed, or, if available, will be on
terms acceptable to the Company.
IMPACT OF INFLATION
Inflation is not expected to have a significant impact on the Company's
business.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and the Results of
Operations and other sections of this Annual Report contain "forward-looking
statements" about the Company's prospects for the future, such as its ability
to generate sufficient working capital, its ability to continue to maintain
sales to justify capital expenses, and its 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 the Company operates, the potential of technological
changes which would adversely affect the need for the Company's products, and
price fluctuations which could adversely impact the large inventory required in
the Company's business. Parties are cautioned not to rely on any such
forward-looking beliefs or judgments in making investment decisions.
18
<PAGE> 20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<S> <C>
Index to Consolidated Financial Statements F-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of August 31, 1997
and 1996 F-3
Consolidated Statements of Operations for the Years
Ended August 31, 1997, 1996, and 1995 F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended August 31, 1997, 1996, and 1995 F-6
Consolidated Statements of Cash Flows for the Years
Ended August 31, 1997, 1996, and 1995 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business--Executive Officers
of the Company" of Part I hereof and the table and text under the caption "Name
of Nominee and Certain Biographical Information" in the Proxy Statement to be
filed with respect to the Annual Meeting of Shareholders to be held on January
27, 1998 (the "Proxy Statement"), which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning this item, see the text and table under the caption
"Compensation of Executive Officers" in the Proxy Statement, which information
is incorporated herein by reference.
19
<PAGE> 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
For information concerning this item, see the table and text under the caption
"Information Concerning Certain Shareholders" in the Proxy Statement, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see the text under the caption "Other
Information Concerning Directors, Officers and Shareholders" in the Proxy
Statement, which information is incorporated herein by reference.
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 reports on Form 8-K were filed during the last quarter of the period
covered by this report.
20
<PAGE> 22
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.
TST/Impreso, Inc.
By: /s/Marshall D. Sorokwasz
-------------------------
Marshall D. Sorokwasz, President
Dated: November 25, 1997
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Marshall D. Sorokwasz Chairman of the Board November 25, 1997
- ------------------------ President, Principal Executive
Marshall D. Sorokwasz Officer, and Treasurer
/s/Richard D. Bloom Senior Vice President of Operations, November 25, 1997
- ------------------- Director
Richard D. Bloom
/s/Donald E. Jett Secretary, Director November 25, 1997
- -----------------
Donald E. Jett
/s/Susan M. Atkins Vice President of Finance, November 25, 1997
- ------------------ Principal Financial Officer,
Susan M. Atkins Principal Accounting Officer
/s/Jay W. Ungerman Director November 25, 1997
- ------------------
Jay W. Ungerman
/s/Robert F. Troisio Director November 25, 1997
- --------------------
Robert F. Troisio
/s/Bob L. Minyard Director November 25, 1997
- -----------------
Bob L. Minyard
</TABLE>
21
<PAGE> 23
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of August 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years Ended
August 1997, 1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended August 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the Years Ended August
31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of TST/Impreso, Inc.:
We have audited the accompanying consolidated balance sheets of
TST/Impreso, Inc. (a Delaware corporation) and subsidiaries as of August 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended August 31, 1997, 1996
and 1995. 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 generally accepted auditing
standards. 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 TST/Impreso, Inc. and
subsidiaries as of August 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years ended August 31, 1997,
1996 and 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
October 2, 1997
F-2
<PAGE> 25
PART ONE: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, August 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,766,274 $ 2,368,395
Trade accounts receivable, net of allowance for doubtful accounts
of $130,000 at August 31, 1997 and $163,633 at August 31, 1996 2,120,168 2,890,411
Investments in marketable securities 978,463 250,000
Inventories 7,889,949 6,343,731
Prepaid expenses and other 516,971 301,731
Deferred income tax assets 364,402 55,635
------------ ------------
Total current assets 13,636,227 12,209,903
------------ ------------
Property, plant and equipment, at cost 12,923,242 12,465,865
Less-Accumulated depreciation (8,765,160) (8,372,733)
------------ ------------
Net property, plant and equipment 4,158,082 4,093,132
------------ ------------
Other assets:
Deposits and other 426,637 708,751
Investments 4,954 4,954
------------ ------------
Total assets $ 18,225,900 $ 17,016,740
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE> 26
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31, August 31,
1997 1996
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 434,331 $ 1,563,662
Accrued liabilities 249,918 239,886
Accrued bonuses -- 175,000
Accrued income taxes 69,387 69,235
Current maturities of long-term debt 5,383 36,769
Line of credit 2,836,184 138,391
Prepetition liabilities:
Current maturities of prepetition taxes payable 25,722 25,722
Current maturities of long-term debt 72,187 74,975
----------- -----------
Total current liabilities 3,693,112 2,323,640
Deferred income tax liability 642,320 623,253
Long-term portion of prepetition debt, net of current maturities 991,221 1,088,480
Long-term debt, net of current maturities 15,817 3,309
----------- -----------
Total liabilities 5,342,470 4,038,682
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.0l par value; 5,000,000 shares authorized; 0 shares
issued and outstanding at August 31, 1997 and August 31, 1996 -- --
Common Stock, $.0l par value; 15,000,000 shares authorized;
5,292,780 and 5,247,730 shares issued and outstanding at
August 31, 1997 and 1996, respectively 52,928 52,477
Warrants 110 110
Additional paid-in capital 6,319,572 5,937,896
Retained earnings 6,510,820 6,987,575
----------- -----------
Total stockholders' equity 12,883,430 12,978,058
----------- -----------
Total liabilities and stockholders' equity $18,225,900 $17,016,740
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-4
<PAGE> 27
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended August 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 33,634,248 $ 47,722,988 $ 37,036,456
Cost of sales 29,927,909 38,290,812 28,782,134
------------ ------------ ------------
Gross profit 3,706,339 9,432,176 8,254,322
------------ ------------ ------------
Other costs and expenses:
Selling, general and administrative 4,116,398 4,551,029 4,165,586
Interest expense 275,057 377,528 1,019,972
Other income, net (200,738) (54,047) (6,144)
------------ ------------ ------------
Total other costs and expenses 4,190,717 4,874,510 5,179,414
------------ ------------ ------------
Income (loss) before income tax expense and
extraordinary gain (484,378) 4,557,666 3,074,908
Income tax expense (benefit):
Current 170,625 1,475,376 104,117
Deferred (178,248) 76,831 490,787
------------ ------------ ------------
Income (loss) before extraordinary gain (476,755) 3,005,459 2,480,004
Extraordinary gain from debt reduction and
restructuring due to bankruptcy, net of
tax effect of $157,516 and $298,222 in
1996 and 1995, respectively -- 296,291 523,326
------------ ------------ ------------
Net income (loss) $ (476,755) $ 3,301,750 $ 3,003,330
============ ============ ============
Income (loss) per share (primary and fully diluted):
Income (loss) before extraordinary gain $ (0.09) $ 0.59 $ 0.62
Extraordinary gain -- 0.06 0.13
------------ ------------ ------------
Net income (loss) per common share $ (0.09) $ 0.65 $ 0.75
============ ============ ============
Weighted average shares outstanding 5,257,667 5,094,637 4,000,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 28
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
$.0l Par Value Paid-In Retained Treasury
Shares Amount Capital Warrants Earnings Stock Total
--------- -------- ----------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1994 4,332,900 $ 43,329 $ 34,671 $ -- $ 689,495 $(45,000) $ 722,495
Net income -- -- -- -- 3,003,330 -- 3,003,330
Retirement of treasury stock (332,900) (3,329) (34,671) -- (7,000) 45,000 --
--------- -------- ----------- -------- ----------- -------- ------------
Balance, August 31, 1995 4,000,000 40,000 -- -- 3,685,825 -- 3,725,825
Warrants -- -- -- 110 -- -- 110
Net income -- -- -- -- 3,301,750 -- 3,301,750
Sale of stock 1,247,730 12,477 5,937,896 -- -- -- 5,950,373
--------- -------- ----------- -------- ----------- -------- ------------
Balance, August 31, 1996 5,247,730 52,477 5,937,896 110 6,987,575 -- 12,978,058
Net loss -- -- -- -- (476,755) -- (476,755)
Stock options exercised
(including tax benefit of
$111,452) 45,050 451 381,676 -- -- -- 382,127
--------- -------- ----------- -------- ----------- -------- ------------
Balance, August 31, 1997 5,292,780 $ 52,928 $ 6,319,572 $ 110 $ 6,510,820 $ -- $ 12,883,430
========= ======== =========== ======== =========== ======== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 29
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended August 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (476,755) $ 3,301,750 $ 3,003,330
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Extraordinary gain -- (453,807) (821,548)
Depreciation and amortization 392,427 369,114 407,862
Deferred income taxes (178,248) 76,831 490,787
(Increase) decrease in accounts receivable, net 770,243 642,611 (1,091,027)
(Increase) decrease in inventories (1,546,218) 269,773 (1,999,011)
(Increase) decrease in prepaid expenses and other (51,485) (34,701) 20,704
Increase (decrease) in cash overdraft -- -- (389,350)
Increase (decrease) in accounts payable (1,129,331) 547,533 772,204
Increase (decrease) in accrued liabilities 10,032 (85,659) 266,900
Increase (decrease) in accrued bonuses (175,000) (365,539) 540,539
Increase (decrease) in accrued income taxes 152 (98,775) 168,010
Increase (decrease) in other current assets 118,359 (228,833) --
----------- ----------- -----------
Net cash provided by (used in) operating activities (2,265,824) 3,940,298 1,369,400
----------- ----------- -----------
Cash Flows From Investing Activities:
Additions to property, plant and equipment (457,377) (641,967) (44,071)
Sales of property, plant, and equipment, net -- 189 4,456
Change in investments, net (728,463) (250,000) --
Change in other noncurrent assets, net -- (224,766) (389,352)
----------- ----------- -----------
Net cash used in investing activities (1,185,840) (1,116,544) (428,967)
----------- ----------- -----------
Cash Flows From Financing Activities:
Net borrowings (payments) on line of credit 2,697,793 (3,704,692) 570,125
Payments on prepetition debt (100,047) (2,710,533) (1,366,259)
Payments on post petition debt, net (18,878) (82,697) (82,461)
Proceeds from exercise of stock options 270,675 -- --
Sale of common stock and warrants -- 5,950,482 --
----------- ----------- -----------
Net cash provided by (used in) financing activities 2,849,543 (547,440) (878,595)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (602,121) 2,276,314 61,838
Cash and cash equivalents, beginning of year 2,368,395 92,081 30,243
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,766,274 $ 2,368,395 $ 92,081
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 30
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS:
TST/Impreso, Inc., a Delaware corporation, is a manufacturer and distributor to
dealers and other resellers of paper products for commercial and home use in
domestic and international markets. The Company's product line consists of
standard continuous computer stock business forms for use in computer printers;
thermal facsimile paper for use in thermal facsimile machines; and cut sheet
paper for use in copying machines, plain paper facsimile machines, laser
printers, and ink-jet printers. TST/Impreso, Inc. has three wholly owned
subsidiaries: Big Time Paper, Inc., TST/Impreso of California, Inc., and Texas
Stock Tab of West Virginia, Inc. Each subsidiary was formed to support
activities of TST/Impreso, Inc. (referred to collectively with its consolidated
subsidiaries as the "Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of TST/Impreso, Inc.
and 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
generally accepted accounting principles 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.
The Company sells its paper products to dealers and other resellers of paper
products for commercial and home use. The Company reviews all existing
customers' financial condition periodically and for average days outstanding in
accounts receivable. Receivables are generally due 30 days from sale. There
have been no unusual credit losses relating to customers. No customer accounted
for 10% or more of net sales for the years ended August 31, 1997 and 1995. One
customer accounted for approximately 22% of net sales for the year ended August
31,1996.
F-8
<PAGE> 31
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
Investments
At August 31, 1996, the Company's investments included an investment in debt
securities with a maturity date of August 15, 2006. In accordance with
Statement of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"), the securities
were classified as short-term due to the securities' liquidity and the
Company's intent to not hold the securities until maturity. At August 31,
1996, the historical cost approximated fair market value. The securities were
sold during the fiscal year ended August 31, 1997, and the related gain has
been included in other income in the accompanying consolidated statement of
operations.
At August 31, 1997, the Company's investments consisted of common stock of an
unrelated publicly traded company. Historical cost approximates fair value at
August 31, 1997. In accordance with SFAS No. 115, the investment is classified
as a trading security.
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 which 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 and amortization are computed on the straight-line
basis using the estimated useful lives of the respective assets, which range
from 3 to 30 years.
Revenue Recognition
Sales are generally recorded when products are shipped to customers.
F-9
<PAGE> 32
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Information
Cash paid for interest during the fiscal years 1997, 1996, and 1995, was
$275,057, $377,528, and $1,019,972, respectively. See note 3 for discussion of
noncash amounts related to extraordinary items. Cash paid for income taxes
during the fiscal years 1997, 1996, and 1995 was $101,238, $1,813,263 and
$230,000, respectively.
Earnings Per Common Share
Earnings per share is based on the weighted average number of common shares
outstanding. Common share equivalents have not been included in the computation
of earnings per share as the dilution of these equivalents is not considered
material.
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 investments-
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 value
of long-term debt at August 31, 1997 is approximately $3,734,000.
The fair market value of the Company's debt is less than what the
Company will pay. This is the result of the Company obtaining
favorable interest rates on its prepetition debt.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
F-10
<PAGE> 33
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. EXTRAORDINARY ITEMS:
During the year ended August 31, 1995, the Company recorded a noncash
extraordinary gain totaling $523,326, net of related income tax expense of
$298,222. The extraordinary gain resulted primarily from the Company's early
extinguishment of two notes payable to a financial institution and the early
settlement of claims to certain prepetition creditors.
During the year ended August 31, 1996, the Company recorded a noncash
extraordinary gain totaling $296,291, net of related income tax expense of
$157,516. The extraordinary gain primarily resulted from the Company's early
extinguishment of two notes payable to financial institutions with an aggregate
face amount of approximately $3.1 million for a negotiated discounted amount of
approximately $2.6 million.
4. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31,
----------
1997 1996
---- ----
<S> <C> <C>
Finished goods $3,915,325 $3,642,869
Raw materials 3,493,589 2,296,347
Supplies 455,738 351,909
Work-in-process 25,297 52,606
---------- ----------
Total $7,889,949 $6,343,731
========== ==========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
AUGUST 31,
----------
1997 1996
---- ----
<S> <C> <C>
Computer forms manufacturing
plants and equipment $11,335,852 $10,933,388
Furniture, fixtures, and other 1,587,390 1,532,477
----------- -----------
12,923,242 12,465,865
Less-Accumulated depreciation (8,765,160) (8,372,733)
----------- -----------
Net property, plant and equipment $ 4,158,082 $ 4,093,132
=========== ===========
</TABLE>
F-11
<PAGE> 34
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT AND LINE OF CREDIT:
The following is a summary of long-term debt and line of credit:
<TABLE>
<CAPTION>
AUGUST 31,
----------
1997 1996
---- ----
<S> <C> <C>
Note payable to a commercial financial corporation
under revolving credit line maturing May 1998,
secured by inventories, trade accounts receivable,
equipment, and a personal guarantee by the trustee
of a trust which is a majority shareholder, interest
payable monthly at prime plus 1.0% (9.50% at
August 31, 1997). $2,836,184 $138,391
Notes payable to commercial financial
corporations, secured, payable in monthly
installments, interest rates ranging
from 1.30% to prime plus 1.0%. 21,200 40,078
Prepetition-
Prepetition taxes payable 51,444 77,165
Note payable to a bank, secured by property,
payable in monthly installments of $4,815
(including interest at 6%) through May 2000,
at which time the remaining balance becomes
due and payable. 590,011 611,926
Other notes payable, secured by a personal
guarantee by the trustee of a trust which is
a majority shareholder, and certain property,
plant, and equipment, maturity dates to 2023,
interest rates ranging from 4% to 10.5%. 447,675 500,086
---------- ----------
Total 3,946,514 1,367,646
Less-Current maturities (2,939,476) (275,857)
---------- ----------
Long-term debt $1,007,038 $1,091,789
========== ==========
</TABLE>
Prepetition amounts listed above represent the renegotiated amounts and terms
under the plan of reorganization.
F-12
<PAGE> 35
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The revolving credit line is limited to the lesser of $5,000,000 or a
percentage of eligible trade accounts receivable and inventories, as defined.
The availability of the revolving credit line was $2,164,000 as of August 31,
1997 and $4,862,000 as of August 31, 1996. The line of credit, as amended, has
restrictive covenants requiring the maintenance of a minimum tangible net worth
and working capital requirements, as defined. As of August 31, 1997 and 1996,
the Company was in compliance with all covenants.
For purposes of the following future maturities schedule, the line of credit is
shown below as a current maturity as borrowings are limited to accounts
receivable and inventories.
Future maturities of long-term debt and line of credit at August 31, 1997, are
as follows:
<TABLE>
<S> <C>
1998 $2,939,476
1999 80,638
2000 40,824
2001 41,993
2002 39,404
Thereafter 804,179
----------
$3,946,514
==========
</TABLE>
7. LEASE AGREEMENTS:
The Company is obligated under various operating leases for equipment and a
building, which expire at various dates through 2003. Future annual minimum
lease payments as of August 31, 1997, are as follows:
<TABLE>
<S> <C>
1998 $ 182,565
1999 170,821
2000 164,560
2001 159,000
2002 159,000
Thereafter 371,000
----------
$1,206,946
==========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
Legal-
In the opinion of management, the Company has no pending legal
proceedings which could
F-13
<PAGE> 36
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
have a material adverse effect on the results of operations or
financial position of the Company.
Significant Contract-
In April 1997, the Company entered into a non-exclusive agreement with
International Business Machines ("IBM") to manufacture and to distribute
certain required volumes of products carrying the IBM logo. The Company
will be 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 contract.
The contract may be canceled by either party upon 120 days written
notice.
9. INCOME TAXES:
The Company utilizes the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 109"), which requires among
other things, an asset and liability approach for financial accounting and
reporting of income taxes.
Significant components of deferred income taxes at August 31, 1997 and 1996,
were as follows:
<TABLE>
<CAPTION>
August 31,
----------
1997 1996
---- ----
<S> <C> <C>
Deferred income tax assets-current:
Allowance for doubtful accounts receivable $ 44,200 $ 55,635
Net operating loss 320,202 ---
---------- ----------
Subtotal 364,402 55,635
Deferred income tax liability-long term:
Tax over book depreciation and amortization (642,320) (623,253)
---------- ----------
Net deferred income tax assets $ (277,918) $ (567,618)
========== ==========
</TABLE>
Substantially all of the net operating loss generated during fiscal year 1997
may be carried back to the 1996 tax reporting year. Therefore, no valuation
allowance has been provided against the Company's deferred income tax assets.
The Company's effective tax rate was different than the statutory federal
income tax rate for the years ended August 31, 1997, 1996, and 1995 as follows
(amounts include effects of extraordinary gain):
F-14
<PAGE> 37
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at statutory rate $(164,689) $1,703,901 $1,324,795
State taxes, net of federal income tax 112,613 64,363 58,512
Tax effect of nondeductible items 32,933 12,870 11,164
Utilization of NOL carryforwards --- --- (995,638)
AMT credit utilized --- (259,545) ---
Change in valuation allowance --- --- 482,857
Other 11,520 188,134 11,436
--------- ---------- ----------
Income tax expense (benefit) $ (7,623) $1,709,723 $ 893,126
========= ========== ==========
</TABLE>
10. RELATED PARTY TRANSACTIONS:
The Sorokwasz Irrevocable Trust, whose trustee is the president of the Company,
and the senior vice president of the Company own 44.09% and 15.74%,
respectively, of the outstanding common stock as of August 31, 1997.
11. STOCK OPTIONS:
The Company sponsors a stock option plan (the "Plan") for certain employees and
directors. 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 become exercisable ratably at various dates
through 2000 at an exercise price of not less than the fair market value at the
grant date. The options generally expire 10 years after date of grant.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which requires entities to
measure compensation costs related to awards of stock-based compensation using
either the fair value method or the intrinsic method value method. Under the
fair value method, compensation expense is measured at the grant date based on
the fair value of the award. Under the intrinsic value method, compensation is
equal to the excess, if any, of the quoted market price of the stock at the
grant date over the amount the employee must pay to acquire the stock. Entities
electing to measure compensation costs using the intrinsic value method must
make pro forma disclosures for fiscal years beginning after December 15, 1995,
of net income and earnings per share as if the fair value method had been
applied.
F-15
<PAGE> 38
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1997 and 1996 would have been a reduction in the
Company's net income of approximately $155,000 and $130,000, and a reduction
in earnings per share of approximately $.03 and $.03, 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 1997 and 1996, respectively: expected volatility of 48%; risk-free
interest rate of 6.57%; expected lives of five years; and no expected
dividends.
Stock options outstanding at August 31, 1997, had a range in exercise prices of
$5.375 to $12.75 and an average remaining contractual life of 8.2 years. The
fair value of options granted during the years ended August 31, 1997 and 1996,
calculated using the Black-Scholes option-pricing model, was approximately
$96,000 ($3.87 per share) and $795,000 ($2.97 per share), respectively.
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
Weighted
Available for Average
Reserved Granted for Grant Price
-------- ------- ------------- --------
<S> <C> <C> <C> <C>
August 31, 1994 --- --- 0 N/A
Increase in shares reserved for options --- --- 400,000 N/A
-------- ------- --------
August 31, 1995 --- --- 400,000 N/A
Granted --- 295,800 (295,800) $6.01
Canceled --- (3,600) 3,600 $6.00
-------- ------- --------
August 31, 1996 --- 292,200 107,800 $6.01
Exercised --- (45,050) --- $6.01
Canceled --- (1,800) 1,800 $6.00
Granted --- 27,500 (27,500) $7.69
-------- ------- --------
August 31, 1997 --- 272,850 82,100 $6.17
======== ======= ========
</TABLE>
F-16
<PAGE> 39
TST/IMPRESO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At August 31, 1997, the outstanding options of 272,850 shares have exercise
prices ranging from $5.375 to $12.75 (fair market value on dates of grant).
Exercisable options total 103,900 shares and are exercisable at a weighted
average exercise price of $5.98.
In connection with the Company's initial public offering, the Company issued
warrants to its underwriters for $.001 per warrant to purchase an aggregate of
110,000 shares of common stock. The warrants became exercisable on October 5,
1996, for four years at an exercise price of $7.20 per share. The Company also
issued warrants to two consultants. One warrant for 10,000 shares of common
stock is exercisable for a period of five years from December 1, 1995, at an
exercise price of $7.20 per share. The other warrant, also for 10,000 shares of
common stock, became exercisable October 5, 1996, for a period of four years at
an exercise price of $6.60 per share.
13. EARNINGS PER SHARE
The FASB has issued SFAS No. 128, "Earnings per Share," which will require the
Company to change its method of calculating earnings per share ("EPS"). SFAS
No. 128 simplifies the computation of EPS by replacing the presentation of
primary EPS with a presentation of basic EPS. Basic EPS is calculated by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. Options, warrants, and other
potentially dilutive securities are excluded from the calculation of basic EPS.
Diluted EPS, which has not changed significantly from the current calculation
of fully diluted EPS, includes the options, warrants and other potentially
dilutive securities that are excluded from basic EPS. In accordance with the
provision of SFAS No. 128, the Company will adopt this new standard beginning
in fiscal year 1998.
F-17
<PAGE> 40
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants S-2
Schedule II-Valuation and Qualifying Accounts S-3
</TABLE>
S-1
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of TST/Impreso, Inc. and subsidiaries
included in this Form 10-K and have issued our report thereon dated October 2,
1997.
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 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 2, 1997
S-2
<PAGE> 42
SCHEDULE II
TST/IMPRESO, INC. AND SUBSIDIARIES(a)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Additions
Balance at Additions Charged Balance at
Beginning Charged to other End of
of Period to Income Accounts Deductions Period
--------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
August 31, 1997:
Allowance for doubtful accounts $ 163,633 -- -- $ (33,633)(b) $ 130,000
--------- --------- ------ --------- ---------
Total reserves and allowances 163,633 -- -- (33,633) 130,000
========= ========= ====== ========= =========
August 31, 1996:
Allowance for doubtful accounts $ 200,000 -- -- $ (36,367)(b) $ 163,633
--------- --------- ------ --------- ---------
Total reserves and allowances $ 200,000 -- -- $ (36,367) $ 163,633
========= ========= ====== ========= =========
August 31, 1995:
Allowance for doubtful accounts $ 200,000 $ 37,445 -- $ (37,445)(b) $ 200,000
Deferred income tax valuation allowance 482,857 -- -- (482,857)(c) --
--------- --------- ------ --------- ---------
Total reserves and allowances $ 682,857 $ 37,445 -- $(520,302) $ 200,000
========= ========= ====== ========= =========
</TABLE>
(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.
(c) All deductions were offset by a decrease in deferred income tax assets.
S-3
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
---------- -----------------------
<S> <C>
3(a) Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to Registration Statement on Form S-1
No. 33-93814)
3(b) By-laws of the Company (incorporated by reference to Exhibit 3.2
to Statement on Form S-1 No. 33-93814)
4 Form of Underwriters' Warrant (incorporated by reference to
Exhibit 4.1 to Registration Statement on Form S-1 No. 33-93814)
10(a) 1995 Stock Option Plan (incorporated by reference to Exhibit 10.1
to Registration Statement on Form S-1 No. 33-93814)
10(b) Employment Agreement dated September 28,1995, between the Company
and Marshall Sorokwasz (incorporated by reference to Exhibit 10.2
to Registration Statement on Form S-1 No. 33-93814)
10(c)+ IBM Brand Paper Trademark Licensing Agreement, effective as
of April 30, 1997, between the Company and International Business
Machines Corporation (incorporated by reference to Exhibit 10-Q/A
dated May 31, 1997)
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to Registration Statement on Form S-1 No. 33-93814)
27 Financial data schedule
</TABLE>
+ Confidential Treatment granted for portions of this Exhibit
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 1,766,274
<SECURITIES> 978,463
<RECEIVABLES> 2,250,168
<ALLOWANCES> 130,000
<INVENTORY> 7,889,949
<CURRENT-ASSETS> 13,636,227
<PP&E> 12,923,242
<DEPRECIATION> 8,765,160
<TOTAL-ASSETS> 18,225,900
<CURRENT-LIABILITIES> 3,693,112
<BONDS> 0
0
0
<COMMON> 53,038
<OTHER-SE> 12,830,392
<TOTAL-LIABILITY-AND-EQUITY> 18,225,900
<SALES> 33,634,248
<TOTAL-REVENUES> 33,634,248
<CGS> 29,927,909
<TOTAL-COSTS> 29,927,909
<OTHER-EXPENSES> (200,738)
<LOSS-PROVISION> 130,000
<INTEREST-EXPENSE> 275,057
<INCOME-PRETAX> (484,378)
<INCOME-TAX> (7,623)
<INCOME-CONTINUING> (476,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (476,755)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
