<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended August 31, 1999
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 22, 1999, based upon the closing sale price of the
Common Stock as reported on the Nasdaq National Market, was approximately
$5,349,913.
There were 5,292,780 shares of the registrant's Common Stock outstanding as of
November 22, 1999.
<PAGE> 2
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of August 31, 1999
and 1998 F-3
Consolidated Statements of Operations for the Years
Ended August 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended August 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the Years
Ended August 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 3
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, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended August 31,
1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 20, 1999
F-2
<PAGE> 4
PART ONE: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, August 31,
1999 1998
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,629 $ 117,840
Trade accounts receivable, net of allowance for doubtful accounts
of $130,397 at August 31, 1999, and $190,000 at August 31, 1998 6,295,988 6,234,005
Income tax receivable 478,909 479,329
Investments in marketable securities 11,088 11,088
Inventories 18,801,015 9,189,973
Prepaid expenses and other 200,739 294,590
Deferred income tax assets 44,335 64,600
------------ ------------
Total current assets 25,854,703 16,391,425
------------ ------------
Property, plant and equipment, at cost 16,845,961 16,217,627
Less-Accumulated depreciation (9,635,739) (9,117,371)
------------ ------------
Net property, plant and equipment 7,210,222 7,100,256
------------ ------------
Other assets 19,453 28,265
------------ ------------
Total assets $ 33,084,378 $ 23,519,946
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 5
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31, August 31,
1999 1998
---------- ----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,053,907 $ 1,578,938
Accrued liabilities 1,678,862 1,048,448
Current maturities of long-term debt 28,179 29,095
Line of credit 6,357,787 5,602,601
Prepetition liabilities:
Current maturities of prepetition taxes payable -0- 25,722
Current maturities of long-term debt 35,233 49,227
----------- -----------
Total current liabilities 17,153,968 8,334,031
Deferred income tax liability 727,865 689,482
Long-term portion of prepetition debt, net of current maturities 884,785 919,508
Long-term debt, net of current maturities 1,744,487 1,778,004
----------- -----------
Total liabilities 20,511,105 11,721,025
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized; 0 shares
issued and outstanding -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
5,292,780 issued and outstanding 52,928 52,928
Warrants 110 110
Additional paid-in capital 6,319,572 6,319,572
Retained earnings 6,200,663 5,426,311
----------- -----------
Total stockholders' equity 12,573,273 11,798,921
----------- -----------
Total liabilities and stockholders' equity $33,084,378 $23,519,946
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 6
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended August 31,
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Net sales $ 59,555,595 $ 50,666,085 $ 33,634,248
Cost of sales 51,894,341 46,290,014 29,927,909
------------ ------------ ------------
Gross profit 7,661,254 4,376,071 3,706,339
------------ ------------ ------------
Other costs and expenses:
Selling, general and administrative 5,605,959 5,264,735 4,116,398
Interest expense 832,539 558,863 275,057
Other income, net (41,971) (44,409) (200,738)
------------ ------------ ------------
Total other costs and expenses 6,396,527 5,779,189 4,190,717
------------ ------------ ------------
Income (loss) before income tax expense 1,264,727 (1,403,118) (484,378)
------------ ------------ ------------
Income tax expense (benefit):
Current 478,390 (345,675) (38,125)
Deferred 11,985 27,066 30,502
------------ ------------ ------------
Total income tax expense (benefit) 490,375 (318,609) (7,623)
------------ ------------ ------------
Net income (loss) $ 774,352 $ (1,084,509) $ (476,755)
============ ============ ============
Net income (loss) per share (basic and diluted) $ 0.15 $ (0.20) $ (0.09)
============ ============ ============
Weighted average shares outstanding 5,292,780 5,292,780 5,257,667
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 7
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
$.01 Par Value Paid-In Retained Treasury
Shares Amount Capital Warrants Earnings Stock Total
------------ --------- ------------ --------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Net loss -- -- -- -- (1,084,509) -- (1,084,509)
------------ --------- ------------ --------- ------------ -------- ------------
Balance, August 31, 1998 5,292,780 52,928 6,319,572 110 5,426,311 -- 11,798,921
Net income -- -- -- -- 774,352 -- 774,352
------------ --------- ------------ --------- ------------ -------- ------------
Balance, August 31, 1999 5,292,780 $ 52,928 $ 6,319,572 $ 110 $ 6,200,663 -- $ 12,573,273
============ ========= ============ ========= ============ ======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 8
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended August 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 774,352 $(1,084,509) $ (476,755)
Adjustments to reconcile net income (loss) to net
cash used in operating activities-
Depreciation and amortization 544,828 352,211 392,427
Deferred income taxes 58,648 27,066 141,954
(Increase) decrease in accounts receivable, net (61,983) (4,113,837) 770,243
(Increase) decrease in income tax receivable 420 (159,127) (320,202)
(Increase) decrease in investments in marketable
securities -- 967,375 (728,463)
(Increase) decrease in inventory (9,611,042) (1,300,024) (1,546,218)
(Increase) decrease in prepaid expenses and other 93,851 222,381 (215,240)
Increase (decrease) in accounts payable 7,474,969 1,144,607 (1,129,331)
Increase (decrease) in accrued liabilities 630,414 729,143 10,184
Increase (decrease) in accrued bonuses -- -- (175,000)
Increase (decrease) in other assets 8,812 403,326 282,114
----------- ----------- -----------
Net cash used in operating activities (86,731) (2,811,388) (2,994,287)
----------- ----------- -----------
Cash Flows From Investing Activities:
Additions to property, plant and equipment (657,735) (3,294,689) (457,377)
Sales of property, plant, and equipment, net 2,941 -- --
----------- ----------- -----------
Net cash used in investing activities (654,794) (3,294,689) (457,377)
----------- ----------- -----------
Cash Flows From Financing Activities:
Net borrowing on line of credit 755,186 2,766,417 2,697,793
Payments on prepetition debt (74,439) (94,673) (100,047)
Net borrowing (payments) on post-petition debt (34,433) 1,785,899 (18,878)
Proceeds from exercise of stock options -- -- 270,675
----------- ----------- -----------
Net cash provided by financing activities 646,314 4,457,643 2,849,543
----------- ----------- -----------
Net decrease in cash and cash equivalents (95,211) (1,648,434) (602,121)
Cash and cash equivalents, beginning of year 117,840 1,766,274 2,368,395
----------- ----------- -----------
Cash and cash equivalents, end of year $ 22,629 $ 117,840 $ 1,766,274
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 9
TST/IMPRESO, INC. AND SUBSIDIARIES
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 and film products for commercial and home
use in domestic and international markets. TST/Impreso, Inc.'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; cut sheet paper for use in copying machines, plain paper facsimile
machines, laser printers, and ink-jet printers; special surface sheeted
products; business stationary; point of sale and cash register machine rolls;
and high speed laser roll paper. 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 and film products to dealers and resellers for
commercial and home use. The Company reviews all existing customers' financial
condition periodically and monitors average days outstanding in accounts
receivable. Receivables are generally due 30 days from sale. There have been no
unusual credit losses relating to customers.
One customer accounted for approximately 34% and 34% of gross sales, and 41%
and 48% of accounts receivable for the years ended August 31,1999 and 1998,
respectively. No customer accounted for 10% or more of gross sales for the year
ended August 31, 1997.
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, 1999, the Company's investments primarily consisted of common
stock of an unrelated publicly
F-8
<PAGE> 10
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
traded company. Historical cost approximates fair value at August 31, 1999. In
accordance with Statement of Financial Accounting Standards No.115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), the
investment was classified as a trading security due to the securities'
liquidity and the Company's intent to not hold the securities until maturity.
Inventories
Inventories are stated at the lower of cost (principally on a first-in,
first-out basis) or market, and include material, labor, and factory overhead.
Property, Plant and Equipment
Property, plant and equipment are stated at acquisition or construction cost.
Expenditures for maintenance, repairs, and improvements 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.
Advertising
Advertising costs are expensed as incurred. Advertising costs were $617,000,
$424,000, and $32,000 for the years ended August 31, 1999, 1998, and 1997
respectively, and are included in selling, general and administrative expenses
in the accompanying consolidated financial statements.
Other Income, Net
Other income, net, consists primarily of gain/loss on sale of property, plant,
and equipment, gain/loss on sale of investments, and interest income.
Cash Flow Information
Cash paid for interest during fiscal years 1999, 1998, and 1997, was $832,539,
$558,863, and $275,057, respectively. Cash paid for income taxes during fiscal
years 1999, 1998, and 1997, was $428,381, $47,295, and $101,238, 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 they are anti-dilutive.
F-9
<PAGE> 11
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Disclosures about Fair Value of Financial Instruments
In accordance with SFAS No.107, "Disclosures About Fair Value of Financial
Instruments," the following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and cash equivalents, accounts receivable, investments, and
accounts payable-
The carrying amount approximates fair value.
Long-term debt-
Based on the borrowing rates currently available to the Company for
bank loans with similar terms and average maturities, the fair
market value of long-term debt at August 31, 1999, is approximately
$8.9 million, or $127,000 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.
3. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
August 31,
----------
1999 1998
----------- ----------
<S> <C> <C>
Finished goods $5,126,046 $4,303,003
Raw materials 12,826,083 4,266,114
Supplies 783,964 574,823
Work-in-process 64,922 46,033
----------- ----------
Total $18,801,015 $9,189,973
=========== ==========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
August 31,
----------
1999 1998
----------- ----------
<S> <C> <C>
Buildings and equipment $15,116,529 $14,484,171
Furniture, fixtures, and other 1,729,432 1,733,456
----------- -----------
16,845,961 16,217,627
Less-Accumulated depreciation (9,635,739) (9,117,371)
----------- -----------
Net property, plant and equipment $ 7,210,222 $ 7,100,256
=========== ===========
</TABLE>
F-10
<PAGE> 12
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
5. LONG-TERM DEBT AND LINE OF CREDIT:
The following is a summary of long-term debt and line of credit:
<TABLE>
<CAPTION>
August 31,
----------
1999 1998
---- ----
<S> <C> <C>
Note payable to a commercial financial corporation under revolving credit line
maturing May 2002, secured by inventories, trade accounts receivable, equipment,
goodwill associated with the Company's trademark IMPRESO (no value on financial
statements) and a personal guarantee by the trustee of a trust which is a majority
shareholder, interest payable monthly at prime plus 1/2% (8.75% at August 31, 1999). $ 6,357,787 $ 5,602,601
Note payable to commercial financial corporation, secured, payable in monthly
installment, interest rate at 1.3%, maturing June 2001. 9,862 15,818
Note payable to a commercial financial corporation, payable in monthly
installments, interest rate at 7.25%, maturing December 2002. 48,980 62,265
Note payable to a bank secured by property, payable in monthly installments of
$14,391.22 (including interest at 4.5% above the 11th District Cost of Funds rate,
9.5% at August 31, 1999) maturing August 2008. 1,698,720 1,710,658
Note payable to a commercial financial corporation, secured, payable in monthly
installments, interest rate of 6.7%, maturing July 2003. 15,103 18,358
Prepetition-
Prepetition taxes payable -0- 25,722
Note payable to a bank, secured by property, payable in monthly installments of
$4,815 (including interest at 6%) through May 2003, at which time the remaining
balance becomes due and payable. 546,120 570,220
Other notes payable, secured by one or more of the following: 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 8%. 373,899 398,515
----------- -----------
Total 9,050,471 8,404,157
Less-Current maturities (6,421,199) (5,706,645)
----------- -----------
Long-term debt $ 2,629,272 $ 2,697,512
=========== ===========
</TABLE>
Prepetition amounts listed above represent the renegotiated amounts and terms
under the 1993 plan of reorganization.
The revolving credit line is limited to the lesser of $13,000,000 or a
percentage of eligible trade accounts receivable and inventories, as defined.
The remaining availability under the revolving credit line was $3,628,000 as of
August 31, 1999. The line of credit, as amended, has restrictive covenants
requiring the maintenance of a minimum tangible
F-11
<PAGE> 13
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
net worth and working capital requirements, as defined. As of August 31, 1999,
1998, and 1997, the Company was in compliance with all covenants.
Future maturities of long-term debt and line of credit at August 31, 1999, are
as follows:
<TABLE>
<S> <C>
2000 $6,421,199
2001 73,199
2002 72,734
2003 496,718
2004 27,709
Thereafter 1,958,913
----------
$9,050,471
==========
</TABLE>
6. LEASE AGREEMENTS:
The Company is obligated under various operating leases for equipment, which
expire at various dates through 2005. Rental expenses under these operating
leases were $195,456, $182,565, and $23,292 for the years ended August 31,
1999, 1998, and 1997 respectively. Future annual minimum lease payments as of
August 31, 1999, are as follows:
<TABLE>
<S> <C>
2000 $219,412
2001 212,551
2002 203,496
2003 191,447
2004 70,202
Thereafter 5,734
--------
$902,842
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
Legal-
In the opinion of management, the Company has no pending legal
proceedings which could have a material adverse effect on the results
of operations or financial position of the Company.
Significant Contract-
In April 1997, the Company entered into a non-exclusive Trademark
Licensing Agreement with International Business Machines ("IBM") to
manufacture and distribute certain selected products carrying the IBM
logo. In March 1999, the Company extended its agreement with IBM from a
four year contract with two one-year automatic renewals, to a six year
contract with two one-year automatic renewals. The Company is required
to pay participation fees based upon a percentage of net profits of
these products (as defined by the agreement) and maintain certain sales
volumes and quality standards as required by the agreement. The
agreement, under certain circumstances, may be canceled by either party
upon 120 days written notice.
F-12
<PAGE> 14
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
8. 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, 1999 and 1998,
were as follows:
<TABLE>
<CAPTION>
August 31,
----------
1999 1998
---- ----
<S> <C> <C>
Deferred income tax assets-current:
Allowance for doubtful accounts receivable $44,335 $64,600
Deferred income tax liability-long term:
Tax over book depreciation and amortization (727,865) (689,482)
--------- ---------
Net deferred income tax liabilities $(683,530) $(624,882)
========= =========
</TABLE>
The Company's effective tax rate was different than the statutory federal
income tax rate for the years ended August 31, 1999, 1998, and 1997, as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at statutory rate (34%) $430,007 $(477,061) $(164,689)
State taxes, net of federal income tax benefit 32,175 9,874 112,613
Tax effect of nondeductible items 27,772 20,810 32,933
Alternative minimum taxes --- 118,694 ---
Other 421 9,074 11,520
-------- --------- ---------
Income tax expense (benefit) $490,375 $(318,609) $ (7,623)
======== ========= =========
</TABLE>
9. 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 14.89%,
respectively, of the outstanding shares of common stock as of August 31, 1999.
10. 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 vest ratably at various dates through 2003 at an exercise
price of not less than the fair market value at the grant date. The options
generally expire 10 years after date of grant.
F-13
<PAGE> 15
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
In addition, the Company granted 35,000 options during 1999 outside of the
Plan. These options vest ratably at various dates through 2001 at an exercise
price of not less than fair market value at the grant date. These options
expire five years after the grant date.
In October 1995, the 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 value method. Under the fair
value method, compensation expense is measured at the grant date based on the
fair value of the award. Under the intrinsic value method, compensation is
equal to the excess, if any, of the quoted market price of the stock at the
grant date over the amount the employee must pay to acquire the stock. Entities
electing to measure compensation costs using the intrinsic value method must
make pro forma disclosures of net income and earnings per share as if the fair
value method had been applied.
The Company has elected to continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and, accordingly, stock options do not represent compensation expense in the
determination of net income in the consolidated statements of operations. Had
stock option compensation expense been determined consistent with the fair
value method of measuring compensation expense under SFAS No. 123, the pro
forma effect for fiscal 1999, 1998 and 1997 would have been a reduction in the
Company's net income, or increase in net loss of approximately, $116,000,
$193,000, and $155,000, respectively, and a reduction in earnings per share, or
increase in net loss per share of approximately, $.02, $.04, 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 1999, 1998 and 1997, respectively: expected volatility of 75%, 60%,
and 48%; risk-free interest rate of 5.67%, 5.45%, and 6.33%; expected lives of
five years; and no expected dividends.
At August 31, 1999, the outstanding options to purchase 304,800 shares have
exercise prices ranging from $3.00 to $12.75 (fair market values on dates of
grant) and an average remaining contractual life of 6.1 years. The fair value
of options granted during the years ended August 31, 1999, 1998 and 1997,
calculated using the Black-Scholes option-pricing model, was approximately
$75,000 ($1.99 per share), $7,600 ($5.48 per share), and $96,000 ($3.87 per
share), respectively. Exercisable options total 254,950 shares and are
exercisable at a weighted average exercise price of $6.11.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Weighted
Available for Average
Reserved Granted for Grant Price
-------- ------- ------------- ----------
<S> <C> <C> <C> <C>
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
--------- ----------- ----------- -----
</TABLE>
F-14
<PAGE> 16
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
<TABLE>
<S> <C> <C> <C> <C>
August 31, 1997 --- 272,850 82,100 $ 6.17
Granted --- 1,500 (1,500) $ 9.69
-------- -------- -------- --------
August 31, 1998 --- 274,350 80,600 $ 6.19
Made Available --- --- 35,000 N/A
Canceled --- (10,550) 10,550 $ 6.00
Granted --- 41,000 (41,000) $ 3.04
-------- -------- -------- --------
August 31, 1999 --- 304,800 85,150 $ 5.78
======== ======== ======== ========
</TABLE>
In connection with the Company's initial public offering ("IPO"), the Company
issued warrants to its underwriters for $.001 per warrant to purchase an
aggregate of 110,000 shares of common stock, which warrants became exercisable
on October 5, 1996, for four years at an exercise price of $7.20 per share. At
the time of the IPO, the Company also issued a warrant to a consultant for
10,000 shares of common stock, which became exercisable October 5, 1996, for a
period of four years, at an exercise price of $6.60 per share, which represents
a price above the fair market value on the date of grant. The Company also
issued a warrant to a consultant for 10,000 shares of common stock, exercisable
for a period of five years from December 1, 1995, at an exercise price of $7.20
per share, which represents a price above the fair market value on the date of
grant.
11. EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS No. 128") in Fiscal 1998. SFAS No. 128 requires the
replacement of primary and fully diluted earnings per share ("EPS") with basic
and diluted earnings per share. The adoption of SFAS No. 128 did not have a
material impact on the earnings per share calculation.
Basic EPS is calculated by dividing net income (loss) attributable to common
stockholders by the weighted average shares of common stock of the Company
("Common Stock"). The calculation of diluted EPS considers the effect of Common
Stock equivalents outstanding during the period. Common Stock equivalents
represent the dilutive effect of the assumed exercise of certain outstanding
stock options and warrants.
12. EMPLOYEE 401(k) PLAN:
In February 1996, the Company implemented an employee 401(k) plan. The plan is
administered by a national brokerage firm and administrative fees associated
with the plan are funded by the plan. The Company's contribution is
discretionary and currently matches 10% of the first 5% of the participating
employees' contributions to their 401(k) accounts. Contributions by the Company
were $16,780, $15,639, and $14,828 for the years ended August 31, 1999, 1998,
and 1997, respectively.
F-15
<PAGE> 17
PART 1
ITEM 1. BUSINESS
GENERAL
TST/Impreso, Inc. and subsidiaries is a manufacturer and distributor to dealers
and other resellers of various paper and film products for commercial and home
use in domestic and international markets. Our company was founded in 1976 as a
converter of continuous stock forms, and in 1990, due to our expanding product
line and distribution, we assumed our present name. Approximately 98% of our
total output is initially sold domestically. Independent resellers purchase and
may further distribute the products internationally. Through our three
manufacturing facilities and 47 public warehouse locations throughout the United
States and in Quebec, Canada, we manufacture and distribute our products under
our own IMPRESO(R) label, generic labels and private labels. In April 1997, we
entered into a non-exclusive Trademark Licensing Agreement with International
Business Machines Corporation for the manufacture and distribution of a selected
line of paper products. In 1999, this agreement was extended and new products
were added.
We operate in the hard copy supply market, which encompasses those products used
with a hard copy output or "imaging" device. Advances in hardware and imaging
material technology have accelerated business and public consumption of new
types of products and are changing the industry's customers, products, and
channels of distribution. Growth opportunities for specific types of products,
such as cut sheet applications, have significantly increased. In response to
industry trends, we refocused our manufacturing strategy by purchasing high
volume commodity sheeters to produce sheet products instead of purchasing precut
sheeted products from mills. Sheeting applications range from plain cut sheet
paper to special surface products, such as transparency film and technical
papers. We began manufacturing special surface sheeted products in the
non-contaminated environment constructed at our Texas facility in 1998. Although
we historically have been a paper products manufacturer and distributor, we
believe we have increased our efficiency and broadened our distribution access
by entering the transparency film market. We also introduced during our fiscal
year ending August 31, 1998, a product line manufactured under the IBM
trademark. In the fiscal year ended August 31, 1999, we added one new product
under the IBM trademark, high speed laser roll paper. In the fiscal year ending
August 31, 2000, we expect to introduce three IBM branded products, wide format
engineering rolls, wide format ink jet media, and processed laser cut sheets.
We operate in a very competitive industry. We have strategically located our
distribution points so that we will be able to deliver our products to customers
in most major cities in the United States within 24 hours. We have approximately
2,600 customers, ranging in size from small business forms dealers to large
office product wholesalers with multiple offices and branches. An increasing
segment of our customer base has been the large and medium size mass merchants,
including computer and office superstores. Our primary method of generating
sales contacts is through our own sales force, manufacturers' sales
representatives, extensive marketing programs, referrals and reputation.
We also own and operate the HotSheet(R) web portal. This portal, at
www.hotsheet.com, provides Internet users with an easy method for finding top
web sites by using a quick-loading single page design featuring over 600
carefully selected links in more than 20 major categories. We have been
operating the HotSheet page for over five years. The site currently receives
more than 10 million hits and is being accessed 2.5 million times by over
500,000 users each month. Additional features on HotSheet.com include:
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o HotSheet Super Search, a metasearch service which combines results
from multiple web search engines and ranks the results by relevance;
o my.HotSheet, a new service that allows users to create their own
personalized page of categorized favorite links;
o the recently introduced HotSheet Search Portal, which provides direct
input to many leading search engines; and
o ShopSheet.com, a quick loading page which contains only the shopping
links found on the main HotSheet.com directory.
RECENT DEVELOPMENTS
We originally constructed the HotSheet web portal to build brand identity for
the IMPRESO and IBM product lines. As a result of increasing usage and
advertising revenues from the site and to maximize shareholder value, on
November 3, 1999, our Board of Directors voted to submit to our stockholders a
proposal to create a parent holding company, Impreso.com, Inc. to hold the stock
of TST/Impreso, Inc., and a sibling subsidiary, HotSheet.com, Inc. HotSheet.com
will own as its primary asset the HotSheet web portal. Under the proposal, our
stockholders will receive shares in Impreso.com in exchange for their shares of
TST/Impreso. Impreso.com will hold all of the shares of TST/Impreso and a
majority of the shares of HotSheet.com The Hotsheet web portal will be
transferred at a later date from TST/Impreso to HotSheet.com. The creation of
the holding company, Impreso.com, Inc., represents the initial step by
management to maximize stockholder value of the HotSheet web portal. Management
believes that a holding company structure will benefit stockholders by allowing
the companies greater flexibility in future dealings with the investment
community.
PRODUCTS
Our product line during fiscal 1999 consisted of the following:
o Continuous Computer Stock Business Forms. We maintain a wide variety
of standard continuous computer stock business forms in various types
of papers, formats for readability and contrast, and basis weights.
Upon request, we occasionally produce customized forms for larger
customers.
o Thermal Facsimile Paper. Our thermal facsimile papers are suitable
for use with all original equipment manufacturers' (OEM's) machines
currently on the market and are warranted against damage that the
paper may cause to a customer's thermal facsimile machine.
o Cut Sheet Paper for use in Laser Printers, Copying Machines, and
Plain Paper Facsimile Machines. We convert cut sheet products,
including IMPRESO Lazer Cut Sheets(R).
o Cut Sheet Paper for use in Ink Jet Printers. We manufacture two types
of ink jet paper, coated and un- coated. Coated ink jet paper, in
both glossy and matte, is designed for superior high resolution color
graphics and photographic reproductions. Uncoated ink jet paper is
primarily used for traditional monochrome applications.
o Digital Photo Ink Jet Paper. Used for printing images from digital
cameras, photo CD's, the Internet, or desktop scanners.
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<PAGE> 19
o Gloss Coated Ink Jet Paper. Gloss coated on one side for brilliant,
high-contrast color images with photographic detail, and matte on the
reverse side for text and graphics.
o Gloss Opaque Ink Jet Film. A stable and long-lasting film for
printing any ink generated image. Its high gloss finish prints
brilliant color images and its matte side prints text and graphics.
o Ink Jet Coated Canvas. A textured product which creates the illusion
of a painted surface.
o Transparency Film for Ink Jet Printers. Clear film specially coated
for smudge/bleed-free color or black ink jet imaging.
o Transparency Film for Copier and Laser Printers. Overhead
transparencies can be created using a plain paper copier and this
film.
o Transparency Film for Color Laser Printers. Designed specially for
color laser applications; the unique coating controls absorption of
color, creating high quality full color overhead transparencies.
o T-Shirt Transfers. A computer and ink jet printer can create
personalized designs for applications on various cotton materials.
o Point of Sale and Cash Register Machine Rolls. Available in both
thermal and plain paper.
o Fine Cotton Business Stationery Line. Fine cotton business stationery
for sale at the retail level.
o High Speed Laser Roll Paper. High speed laser roll paper is
specifically engineered for high speed roll fed printing systems,
such as IBM's Infoprint family of continuous-feed printing systems
like the Infoprint 3000 and Infoprint 4000. In addition, this paper
can be used in Xerox or OCE systems. These rolls are used by
companies, such as investment banking institutions and publishing
companies, for variable data output applications, such as customized
statements and book publishing. The advantages of using high speed
roll fed printing systems for mass production over traditional
methods of offset printing are lower costs and faster speeds of
production without sacrificing image quality.
NEW PRODUCTS
o Wide Format Engineering Rolls. Available in three different grades of
paper, bond, vellum, and translucent bond, and in a variety of widths
and lengths. These products are used with wide format printing and
copying equipment, such as those used by architectural and
engineering firms for design plans and renderings. The introduction
of engineering rolls represents our entry into the rapidly growing
wide format printing market. This product category also opens a new
channel of distribution through computer-aided design (CAD) supply
dealers.
o Wide Format Ink Jet Media. Available in a wide variety of coated
papers and films used for full color graphic signage and display.
o Processed Laser Cut Sheets. The Company intends to start production
of processed laser cut sheets in December 1999. Laser Cut Sheets are
micro-perforated and/or pre-punched cut sheets used in
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<PAGE> 20
copiers, laser printers, and ink jet printers for applications such
as return/reply promotional materials, billing and remittance
statements, or coupons. Users can keep printing projects in-house by
eliminating the use of outside sources for custom forms.
TRADEMARK LICENSE
In April 1997, we entered into a non-exclusive Trademark Licensing Agreement
with IBM. Under this agreement we manufacture and distribute a selected line of
paper products within the United States, Canada and Mexico under the IBM brand
name. In March 1999, we extended the agreement with IBM from a four-year
contract with two one-year automatic renewals, to a six-year contract with two
one-year automatic renewals. The amended agreement also expanded the list of
authorized products. Management believes that brand name identification is an
effective tool for penetration of market share and maintenance of profit
margins. We began shipping IBM branded products in fiscal 1998. In fiscal 1999,
we introduced one new product under the IBM brand name, high speed laser roll
paper. We intend to introduce three IBM branded products in December 1999, wide
format engineering rolls, wide format ink jet media, and processed laser cut
sheets. We have been actively soliciting distributors, dealers, and retail
accounts into the IBM program and have established a solid base for creating
additional sales opportunities to existing accounts, as well as initial sales to
new customers who are now purchasing from us as a direct result of their
participation in the IBM branded paper program.
MARKETING AND DISTRIBUTION
We market our products to approximately 2,600 customers through our own sales
force and established manufacturers' representatives. Our targeted customers are
business consumable and office machine dealers and large and medium mass
merchants, including computer and office superstores. We are continually seeking
to diversify our customer base and distribution channels. The incorporation of
non-traditional but related product categories into our expanding product line
may facilitate our access to different distribution channels.
We have 50 distribution points (47 public warehouses and three plants), which
enable us to deliver products to most major cities in the United States within
24 hours. Our primary method of generating revenue is through our 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.
We sell to the following types of customers:
o Business Forms Dealers. Business form dealers are typically
businesses which primarily buy and resell various types of business
forms.
o Wholesale Stationers. Wholesale stationers are businesses which
supply a large variety of office products to office product dealers.
The wholesale stationers do not sell directly to the end user.
o Office Products Dealers. Office products dealers are businesses which
generally purchase a majority of their products from the wholesale
stationers, but often negotiate directly with manufacturers such as
us.
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<PAGE> 21
o Paper Merchants. Paper merchants sell all types of papers to printers
and dealers and directly to end users.
o Consumer Electronics Stores. Consumer electronic stores sell retail
to the end user in a broad spectrum electronics environment.
o Mass Merchants. Mass merchants are retail sections of department,
grocery or drug stores that sell computer, copier and facsimile
related supplies.
o Computer Superstores. Computer superstores sell computer products,
accessories, and consumables at retail.
o Wholesale Clubs/Office Superstores. Wholesale clubs/office
superstores comprise the fastest growing segment of the office
products market. They sell large quantities of inventory at near
wholesale prices to end users and dealers. These stores do not
generally provide the credit, delivery, and other types of services
support to the extent that the wholesale stationers provide their
customers.
o Original Equipment Manufacturers (OEMs). These manufacturers make the
business machines in which paper products are used. Many OEMs market
their own privately labeled consumables as secondary sales to their
business machines, such as copiers, printers and facsimile machines.
o Catalog Sales. Catalog companies publish their own catalogs and send
them to customers, who then order merchandise by telephone,
facsimile, or e-mail and have it delivered.
o Buying Groups. These are groups of dealers, ranging from ten to 400
members, that combine their buying power to receive, among other
things, volume discount pricing and rebate incentives from
manufacturers.
o Computer Aided Design (CAD) Supply Dealers. These dealers typically
sell wide format supplies and papers to architects and engineers.
o Contract Stationers. Companies which offer a complete catalog of
office and business supplies generally to large corporations. Various
types of products a business uses are bundled and sold under
contract.
o Computer Supply Wholesalers. Businesses which offer a broad line of
computer supplies and hardware to resellers.
Although we have specialized in select markets and have emphasized service and
long-term relationships to meet customer needs more effectively, there are no
long-term contractual relationships between us and any of our customers. One
single customer, Staples, Inc. accounted for more than 10% of our sales in each
of fiscal 1998 and 1999. We have derived a significant portion of our revenues
from Staples in these years, and currently and may in the future be dependent on
Staples or other significant customers. However, there can be no assurance that
purchases by Staples will remain at significant levels. The loss of Staples or
any other significant customer could materially adversely affect our financial
position, results of operations and cash flows.
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<PAGE> 22
MANUFACTURING
We manufacture computer stock forms at each of our three manufacturing
facilities in Coppell, Texas; Fontana, California; and Kearneysville, West
Virginia. Our equipment for 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 us 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. Our equipment can produce nearly all of the computer business stock
forms products required by a form distributor or retailer.
Since 1989, we have operated our rewinder slitters used for the conversion of
thermal facsimile paper at our manufacturing facility in Texas. The thermal
facsimile paper was then distributed to our other plants and to public
warehouses for further distribution. In fiscal 1998, we added slitting
capabilities at our West Virginia plant. Our slitting capabilities have allowed
us to expand our product line to include other types of rolled paper products,
such as point-of-sale and cash register machine rolls, high speed laser roll
paper, wide format engineering rolls, and wide format ink jet media.
Our high volume commodity sheeters are currently converting raw materials at our
Texas and West Virginia plants. We also operate sheet presses similar to a quick
print. We own substantially all of the printing and manufacturing equipment we
use in the manufacture of our products, subject to liens granted to our lenders.
In fiscal 1998, we completed the construction of a special clean room at our
Texas facility and installed a state-of-the-art sheeting and packaging system,
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.
We maintain a quality assurance team which participates in the manufacturing and
packaging of all of our products. We continue to monitor any new product
requirements of our customers and to assess what new equipment or modifications
of existing equipment may be required to produce such products.
INVENTORY MANAGEMENT; RAW MATERIALS
We believe that it is necessary to maintain a large inventory of finished goods
and raw materials to adequately service our customers. Because we are currently
manufacturing and distributing new brands and types of products, our raw
material and finished goods inventory requirements have increased over prior
years. Therefore, we have substantially increased our inventory levels. We bear
the risk of increases in the prices charged by our suppliers and decreases in
the prices of raw materials held in our inventory. If prices for products held
in our finished goods inventory decline or if prices for raw materials required
by us decline, or if new technology is developed that renders obsolete products
distributed by us and held in inventory, our business could be materially
adversely affected.
We purchase raw paper, coated thermal facsimile paper, coated technical paper,
carbon and carbonless paper, consisting of a wide variety of weights, widths,
colors, sizes and qualities, transparency film, packaging and other supplies in
the open market from a number of different companies around the world. We
believe that adequate sources of raw material supplies exist to meet the
requirements of our business. Raw materials represented 68% of total inventory
at August 31, 1999. We believe that we have a good relationship with all of our
current suppliers.
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<PAGE> 23
MARKET CONDITIONS
During the third quarter of fiscal 1999, our suppliers began increasing the
price of raw materials resulting in our implementing a price increase for our
finished goods. Due to another price increase by our suppliers, we intend to
implement another price increase on finished goods in the second quarter of
fiscal 2000. Management believes that raw material paper costs will increase in
the first two quarters of fiscal 2000 and then stabilize. Although the finished
good price increase in the third quarter of fiscal 1999 was successfully
implemented, resistance by customers to finished good price increases could
create downward pressure on finished goods selling prices, which could result in
lower net sales and profit margins for us. If selling prices for products
manufactured by us cannot increase in relationship to raw material cost
increases, or if prices for products manufactured by us decline as a result of
market pressures, our results of operations could be materially adversely
affected. In addition, the increased growth of discount retailers, such as
office superstores, and the increase of sales to those retailers as a percentage
of our total sales could also contribute to a reduction in our profit margin, as
price wars among them adversely impact their suppliers.
SEASONALITY
We may be subject to certain seasonal fluctuations in that orders for products
may decline over the summer months. However, we do not believe that such
fluctuations have a material adverse effect on our results of operations.
BACKLOG
The dollar value of our order backlog as of August 31, 1999 and 1998, was
approximately $1.4 million and $2.7 million, respectively. Our ability to fill
orders is directly impacted by the general cyclical pattern of the paper
industry and our ability to purchase the raw materials and finished goods
necessary to fill customer orders. The decrease in backlog is related to our
increased inventory and new streamlined policies and procedures in filling
orders.
COMPETITION
We compete with a number of other business organizations within the paper
industry, some of which have substantially greater financial, human and other
resources than us. We currently compete principally with manufacturers like us
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 in the past few years have caused the major
direct-selling companies, which are much larger than us, to sell direct and to
dealers. In some cases, this has led to our customers reducing their selling
prices to compete with these dealers. This has also caused increased competition
among companies selling products through dealers. In addition, vertical
consolidation among entities in the paper industry has created tougher
conditions, since parent corporations of our competitors who are also our
suppliers, support the efforts of their subsidiaries. Finally, in the changing
environment of the hard copy supply industry, advancing technology has
contributed to the competition as companies must commit resources to obtain new
equipment in order to convert the evolving types of business consumables
required by the advancement of technology and to expand facilities to house the
increasing number of types of products available and for just-in-time inventory
customers.
We have remained competitive by beginning the manufacture and distribution of
non-paper, technical and high recognition branded products. The addition of
technical products into our line has positioned us as a
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<PAGE> 24
supplier of business consumables at the initial growth stages of the
technology's introduction into the market and, therefore, at the greatest
opportunity for strong profit margins and growth in unit sales. Branded products
benefit from brand loyalty and name recognition. Since we have begun the
manufacture and distribution of non-paper, technical and trademark licensed
branded products and have penetrated new distribution channels with our
expanding product lines, management believes that in the future the companies it
will compete with will change as the consolidation within the paper industry
causes competitors to branch into other categories of products that may not
compete with the lines we offer.
We believe that we effectively compete on the basis of the following: our
nationwide distribution network, which enables products to be delivered to our
customers in most major cities in the United States within 24
hours; our larger number of inventory items providing customers cost-effective,
efficient purchasing and volume discounts; and by providing high-quality
products and customer-oriented services.
YEAR 2000
We have completed the conversion of our main computer system used in several key
areas of our business, including purchasing, inventory management, shipping and
financial reporting, to allow for correct processing of data beginning January
1, 2000. Y2K compliant application software is currently in use and has been
date tested on an off site computer. The problem identification phase for other
information technology equipment, such as independent personal computers
("P.C.'s"), and all non-information technology equipment, such as the embedded
controls in our manufacturing equipment, has also been completed, and management
has determined that a corrective action plan is not required, since no material
problems were identified.
Total costs of remediation of all information and non-information technology was
approximately $180,000. Equipment not acquired in reaction to Y2K
considerations, but purchased in the normal course of business is not included
in the estimate of total costs. Although we utilized both internal and external
resources to implement and test the Year 2000 activities to eliminate
interruptions or failure, there can be no assurance that these efforts will be
successful. Our costs of the Year 2000 compliance are based upon no
extraordinary adverse events.
We have completed our survey of the Year 2000 compliance status of our primary
suppliers and customers, which have assured us of their Y2K compatibility. As a
result, we do not intend to develop a formal contingency plan. If significant
third-party supplier systems do not work properly, we may experience operation
disruptions including temporary inability to manufacture or ship product,
process transactions, communicate with customers, suppliers and subsidiary
locations, and other customary business activity. Should one of our facilities
experience significant operation disruptions, we intend to shift production from
the disrupted facility to one of our other locations. A disruption of this
nature could adversely impact revenues for the reporting quarter.
TRADEMARKS
We use the trademark IMPRESO, a Spanish word meaning printed matter, on certain
products we manufacture and distribute. The trademark is registered in the
United States, which registration, renewed in August 1995, is effective until
August 2009. The Company has also registered IMPRESO as a service mark, which
registration, renewed in January 1995, is effective until May 2000. The IMPRESO
trademark is also registered in Canada, Great Britain, France, Benelux and
Italy. These foreign registrations are subject to renewal commencing in October
2000. Management believes that the IMPRESO trademark has significant
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<PAGE> 25
name recognition and is important in marketing and achieving visibility of our
products. The goodwill value associated with the name IMPRESO has been pledged
as an asset to our current primary secured lender under our revolving line of
credit.
We also have a trademark registration in the United States for "Lazer Cut
Sheets" and "Lazer Bond(R)" which registrations, subject to renewal, are
effective until May 2007. Each of the Lazer Cut Sheet and Lazer Bond trademarks
are applied only to one specific product that we manufacture.
In fiscal 1998, we obtained a United States service mark on HotSheet, our
proprietary Internet portal. The HotSheet registration, subject to renewal, is
effective until January 2008. We filed a service mark application for
Shopsheet(TM), a subportal of Hotsheet.com, in February 1999, and the
registration is pending.
SERVICE AND SUPPORT
Management believes that customer service is an important factor in product
sales and customer satisfaction. Service and support include our own in-house
trucking that back-hauls goods for other entities, which reduces transportation
costs and improves customer service. An in-house graphics department that can
design and prepare layouts of packaging and can produce negatives, which allow
us speed and flexibility when bringing new products or packaging into the
marketplace. We also sell our graphics capabilities to our customers. Our
customer service department can expedite service because our computer system
sends a bill of lading by facsimile to the appropriate distributing warehouse
and an order acknowledgment to the receiving customer when an order is entered
by a customer service representative. Our computer system automatically
calculates inventory levels at each warehouse and the amount of raw materials we
must purchase, and identifies which of our plant locations will manufacture an
order.
We also have a collection and credit department. Our staff evaluates extensions
of credit and make written and verbal requests for payment from those customers
whose invoices are not paid within agreed payment terms. We also maintain
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
Management believes that compliance with any environmental regulations that may
be applicable to us will not have a material adverse effect on the Company's
capital expenditures, earnings or competitive position.
EMPLOYEES
We had 203 full-time employees at August 31, 1999, 144 were engaged in
manufacturing, 23 were engaged in sales and marketing and 36 were administrative
and clerical personnel, including 6 executives. None of our employees are
currently covered by a collective bargaining agreement. We consider our employee
relations to be good as a result of an organizational structure which encourages
individual initiative as well as team work. Approximately 82% of all salaried
employees have been with us more than seven years.
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ITEM 2. PROPERTIES
We operate three manufacturing plants encompassing an aggregate of approximately
192,200 square feet of space. We own our manufacturing plants in Coppell, Texas,
Kearneysville, West Virginia, and Fontana, California. The West Virginia
property is encumbered by mortgages maturing in 2023. Our facilities in Fontana,
California, are encumbered by a mortgage maturing in 2008. The Coppell, Texas,
facility, where the executive offices are located, is approximately 60,000
square feet and is unencumbered. We maintain a regional sales office in
Huntington, New York, under a lease which expires April 30, 2000. In addition,
we maintain warehouse space in Dallas, Texas, pursuant to a month-to-month
tenancy. Annual mortgage payments and minimum lease payments relating to these
facilities were approximately $265,000 in fiscal 1999 and $148,000 in fiscal
1998. Costs incurred for the 47 public warehouses we utilize throughout the
United States and in Quebec, Canada was approximately $598,000 for fiscal 1999.
On November 22, 1999, we entered into a loan agreement with Valley Bank-East,
National Association to co-fund the construction of a new building and the
refinance of the mortgage of our existing facility in West Virginia. On December
20, 1999, we intend to enter into an agreement with the West Virginia Economic
Development Association on the same project. The expansion building will be
constructed on our unimproved lot adjacent to our West Virginia plant. The new
building, which will be approximately 50,000 square feet, will store inventory
which is currently stored at a public warehouse location. The additional debt we
will incur at the conclusion of the construction will be approximately $870,000,
maturing in 2010.
Our HotSheet operation is currently operating from our headquarters at the
Coppell facility and through our internet service provider located in Dallas,
Texas.
We believe our current facilities are in good condition, and with our proposed
facilities, are suitable and adequate for current business needs. Management
estimates that, as of August 31, 1999, we were operating at approximately 60%
capacity for all of the products we manufacture, which will allow us to acquire
additional business with no immediate capital investment.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
10
<PAGE> 27
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND STOCKHOLDER
MATTERS
Our common stock is quoted on the Nasdaq National Market ("NNM") under the
symbol "TSTI." The high and low closing prices for the common stock, as reported
on the NNM, are as follows:
<TABLE>
<CAPTION>
Price Range
------------------------------
1998 Fiscal Year and Period High Low
---------- ----------
<S> <C> <C>
First Quarter (Sept. - Nov. ) $ 13.5000 $ 8.2500
Second Quarter (Dec. - Feb.) 12.3125 7.3750
Third Quarter (Mar. - May) 12.0000 4.3750
Fourth Quarter (Jun. - Aug.) 4.5000 2.7500
</TABLE>
<TABLE>
1999 Fiscal Year and Period
<S> <C> <C>
First Quarter (Sept. - Nov. ) $ 3.2500 $ 1.7500
Second Quarter (Dec. - Feb.) 6.1250 2.1250
Third Quarter (Mar. - May) 5.6250 3.0000
Fourth Quarter (Jun. - Aug.) 4.5630 2.7500
</TABLE>
On November 22, 1999, the closing price for the common stock on NNM was $3.5625
and the common stock was held by approximately 978 stockholders of record,
including holdings through nominee or street name accounts with brokers.
We have not paid any dividends on our common stock since inception, and we do
not intend to pay any dividends to our stockholders in the foreseeable future.
We intend to reinvest earnings, if any, in the development and expansion of our
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.
On November 19, 1999, we received notice from the Nasdaq Stock Market that our
common stock was failing to maintain a market value of public float greater than
or equal to $5 million in accordance with Marketplace Rule 4450(a)(2) under
Maintenance Standard 1 for the Nasdaq National Market. The market value of
public float on any day is calculated by multiplying the number of shares of
common stock held by non-affiliates by the closing bid price. Compliance
requires that for a minimum of ten consecutive trading days the closing bid
price of our common stock is a multiple sufficient to place the value of public
float greater than $5 million. As of November 1, 1999, that would require a
closing bid price of approximately $3.33. We are currently in compliance with
all of the remaining maintenance standard requirements, such as net tangible
assets and minimum bid price. We have been given 90 days in which to regain
public float compliance. If we cannot demonstrate compliance within the time
frame provided, our securities may be delisted from the Nasdaq National Market
on February 21, 2000. Management is reviewing various responses to the situation
in order to achieve compliance with Marketplace Rule 4450(a)(2). Should such
responses not achieve compliance, we can appeal the determination to a Nasdaq
Listing Qualifications Panel, apply to become listed on the Nasdaq Small Cap
Market, or apply to become listed on the American Stock Exchange. There can be
no assurance, however, that we will qualify for such listing or can remain in
compliance with the Nasdaq National Market, the Nasdaq Small Cap Market or
American Stock Exchange maintenance standards.
11
<PAGE> 28
If we do not qualify for listing on any of the markets, we may apply for listing
on the OTC Bulletin Board. The OTC Bulletin Board is a regulated quotation
service that displays real-time information on over-the-counter (OTC) equity
securities. An OTC equity security generally is any equity that is not listed or
traded on Nasdaq or a national securities exchange.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data of our company as of and
for the five years ended August 31, 1999. The historical financial data has been
derived from our audited financial statements. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements appearing
elsewhere in this document.
SELECTED FINANCIAL DATA (a)
Years Ended August 31,
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
Operations Data:
<S> <C> <C> <C> <C> <C>
Net Sales $ 37,036,456 $ 47,722,988 $ 33,634,248 $ 50,666,085 $ 59,555,595
Operating income (loss)
before extraordinary item 2,480,004 3,005,459 (476,755) (1,084,509) 774,352
Extraordinary item
(net of taxes) 523,326(b) 296,291(b) -- -- --
Net Income (loss) 3,003,330 3,301,750 (476,755) (1,084,509) 774,352
Earnings (loss) per common
share:
Income (loss) before
extraordinary item 0.62 0.59 (0.09) (0.20) .15
Net Income (loss) 0.75 0.65 (0.09) (0.20) .15
Consolidated
Balance Sheet Data:
Total assets 14,586,211 17,016,740 18,225,900 23,519,946 33,084,378
Long-term debt (excluding
current maturities) 3,602,917 1,091,789 1,007,038 2,697,512 2,629,272
Stockholders' Equity $ 3,725,825 $ 12,978,058 $ 12,883,430 $ 11,798,921 $ 12,573,273
</TABLE>
Notes to Selected Financial Data
(a) This schedule should be read in conjunction with our audited
Consolidated Financial Statements and related notes thereto.
(b) Early extinguishment of debt.
12
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1999, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 1998
Net Sales--- Net sales increased from $50.7 million in fiscal 1998 to $59.6
million in fiscal 1999, an increase of $8.9 million or 18%, as a result of the
increasing sales of branded products.
Gross Profit--- Gross profit increased from $4.4 million in fiscal 1998 to $7.7
million in fiscal 1999, an increase of $3.3 million or 75.1% . Costs of sales as
a percentage of net sales decreased to 87.1% in fiscal 1999, as compared to
91.4% in fiscal 1998. The increase of gross profit resulted from increased
revenues and a decrease in the cost of sales as a percentage of net sales. Our
gross profit percentage increased from 8.6% for fiscal 1998 to 12.9% for fiscal
1999, due to higher margins on products, such as branded products, comprising a
significantly larger percentage of net sales for that period.
Selling, General and Administrative Expenses--- SG&A expenses for fiscal 1999
were $ 5.6 million, or 9.4% of net sales, as compared to $5.3 million, or 10.4%
of net sales for fiscal 1998. SG&A as a dollar amount remained relatively
constant but decreased as a percentage of net sales in fiscal 1999, as compared
to the corresponding period of the prior year, due to increased net sales.
Interest Expense--- Interest Expense increased from $559,000 for fiscal 1998 as
compared to $833,000 for fiscal 1999, an increase of $274,000 or 49%. This
increase is primarily attributable to increased borrowings under our revolving
line of credit. The increased borrowings reflect our increased inventory and
accounts receivable during fiscal 1999, as compared to fiscal 1998.
Income Taxes--- Tax expense was $ 490,000 for fiscal 1999, as compared to a
$319,000 tax benefit for fiscal 1998. The tax expense resulted primarily from
the profits for fiscal 1999 compared to a loss in fiscal 1998.
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1998, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 1997
Net Sales--- Net sales for fiscal 1998, increased $17 million, or 50.6%, to
$50.7 million, as compared to $33.6 million for fiscal 1997, as a result of: our
shift from sales of continuous forms, a saturated declining market, to cut
sheets, a growing market; the introduction of IBM branded products; and
increased sales to one customer, Staples. Sales of continuous forms for fiscal
1998, decreased to 56.4% as a percentage of net sales as compared to 74.6% of
net sales in fiscal 1997, while cut sheet products sales increased to 36.2% in
fiscal 1998, as a percentage of net sales, as compared to 17.1% in fiscal 1997.
We also increased our sales to Staples which represented approximately 34% of
sales in fiscal 1998, as compared to 8.5% of sales for fiscal 1997. In fiscal
1998 we recorded our first sales of IBM branded products.
Gross Profit--- Gross profit for fiscal 1998, increased $700,000, or 18.1%, to
$4.4 million as compared to $3.7 million in fiscal 1997. The dollar increase was
the result of increased revenues. Costs of sales as a percentage of net sales
increased to 91.4% in fiscal 1998, as compared to 89% in fiscal 1997. Although
gross profit and net sales increased, our gross profit percentage decreased to
8.6% for fiscal 1998, as compared to 11% for fiscal 1997, as a result of sales
of lower margin products, such as plain cut sheet paper, comprising a greater
percentage of net sales for that period. The decreased gross profit percentage
also reflects the continued trend of declining raw material prices and reduced
selling prices of finished goods below the raw material cost reduction. We have
responded to this trend by construction of the clean room facility at our Texas
plant in
13
<PAGE> 30
fiscal 1998, where specialty surface cut sheets are manufactured. We believe
that these products will be less vulnerable to commodity paper price
fluctuations.
Selling, General and Administrative Expenses--- SG&A expenses for fiscal 1998,
were $5.3 million, or 10.4% of net sales, as compared to $4.1 million, or 12.2 %
of net sales for fiscal 1997. SG&A as a percentage of net sales decreased
significantly in fiscal 1998, due to higher net sales somewhat offset by
promotional rebate programs initiated in the second quarter of fiscal 1998.
Interest Expense--- Interest Expense increased by $284,000, or 103.2%, to
$559,000 for fiscal 1998, as compared to $275,000 for fiscal 1997. This increase
is primarily attributable to increased borrowings under our revolving line of
credit. The increased borrowings reflected our increased inventory and accounts
receivable as of August 31, 1998, as compared to August 31, 1997.
Income Taxes---We had a tax benefit of $318,600 for fiscal 1998, as compared to
a $7,600 tax benefit for fiscal 1997. The benefits recorded resulted primarily
from losses sustained by us for fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $ 95,000, or 80.8%, from $118,000 in fiscal
1998 to $23,000 in fiscal 1999, primarily due to cash used for operating
activities.
Borrowings under our line of credit increased $ 755,000, or 13.5%, to $6.4
million at August 31, 1999, as compared to $5.6 million at August 31, 1998,
primarily as a result of our increasing raw material and finished goods
inventories because of introductions of new brands and products and as a result
of increased accounts receivables due to increased net sales.
Working capital increased to $8.7 million at August 31, 1999, from $ 8.1 million
at August 31, 1998, an increase of $643,000 or 8.0%. This increase is primarily
attributable to the increased inventories of $9.6 million, offset in part by
increased current liabilities of $8.8 million.
In May 1999, we entered into an agreement with a bank for a two-year renewal of
our revolving line of credit. The loan is secured by, among other things,
inventory, trade receivables, equipment and a personal guarantee of Marshall
Sorokwasz, Chairman of the Board and President of our company and Trustee of a
trust which is a principal shareholder of our company. Available borrowings
under this line of credit, which accrues interest at the prime rate of interest
plus 1/2% (8.50% at August 31, 1999), are based upon specified percentages of
eligible accounts receivable and inventories. As of August 31, 1999, there was a
$3.6 million borrowing capacity remaining under the $13 million revolving line
of credit. The revolving credit line will mature in May 2002. The renewed loan
has more favorable terms, including an increase in the line from $12 million to
$13 million, a decreased interest rate ranging from prime plus 1/2% to prime
plus 1/4% based upon financial performance, and an increased percentage of
borrowings based on inventory.
On November 22, 1999, we entered into a loan agreement with Valley Bank-East,
National Association to co-fund the construction of a new building and the
refinance of the mortgage of our existing facility in West Virginia. On December
20, 1999, we intend to enter into an agreement with the West Virginia Economic
Development Association on the same project. The expansion building will be
constructed on our property adjacent to our West Virginia plant. The new
building, which will be approximately 50,000 square feet, will store inventory
which is currently stored at a public warehouse location. The additional debt we
will incur at the conclusion of the construction will be approximately $870,000,
maturing in 2010.
14
<PAGE> 31
We believe that the funds available under the loan and loan commitment for the
addition to our West Virginia facility, the revolving credit facility, cash and
cash equivalents, trade credit, and internally generated funds will be
sufficient to satisfy our requirements for working capital and capital
expenditures for at least the next twelve months. Such belief is based on
certain assumptions, including the continuation of current operations and no
extraordinary adverse events, and there can be no assurance that such
assumptions are correct. In addition, expansion of our operations due to demand
for the new types and brands of product we manufacture may require us to obtain
additional capital to add new manufacturing facilities. If that should occur,
the funds required for the new facilities would be generated through securities
offerings or additional debt. There can be no assurance that any additional
financing will be available if needed, or, if available, will be on acceptable
terms.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not exposed to market risks such as foreign currency exchange rates, but
are exposed to risks such as variable interest rates. Market risk is the
potential loss arising from adverse changes in market prices and rates. We do
not have supply contracts with any of our foreign vendors. All foreign vendors
are paid in United States currency. In addition, our international sales of
finished goods are insignificant. Accordingly, there are not sufficient factors
to create a material foreign exchange rate risk; therefore, we do not use
exchange commitments to minimize the negative impact of foreign currency
fluctuations.
We had both fixed-rate and variable-rate debts as of August 31, 1999. The fair
market value of long-term variable interest rate debt is subject to interest
rate risk. Generally the fair market value of variable interest rate debt will
decrease as interest rates fall and increase as interest rates rise. The
estimated fair value of our total long-term fixed rate and floating rate debt
approximates fair value. See Note 2 in Notes to Consolidated Financial
Statements.
As of August 31, 1999, we did not own derivative or other financial instruments
for trading or speculative purposes.
Based upon our market risk sensitive debt outstanding at August 31, 1999, there
was no material exposure to our financial position or results of operations.
IMPACT OF INFLATION
Inflation is not expected to have a significant impact on our business.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and the Results of
Operations and other sections of this Form 10-K contain "forward-looking
statements" about our prospects for the future, such as our ability to generate
sufficient working capital, our ability to continue to maintain sales to justify
capital expenses, and our ability to generate additional sales to meet business
expansion. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected, including
availability of raw materials, availability of thermal facsimile, computer,
laser and color ink jet paper, to the cyclical nature of the industry in which
we operate, the potential of technological changes which would adversely affect
the need for our products, price fluctuations which could adversely impact the
large inventory we require, loss of any significant customer, and termination of
contracts essential to our business. Parties are cautioned not to rely on any
such forward-looking statements or judgments in making investment decisions.
15
<PAGE> 32
<TABLE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL
DATA
<S> <C>
Index to Consolidated Financial Statements F-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of August 31, 1999
and 1998 F-3
Consolidated Statements of Operations for the Years
Ended August 31, 1999, 1998, and 1997 F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended August 31, 1999, 1998, and 1997 F-6
Consolidated Statements of Cash Flows for the Years
Ended August 31, 1999, 1998, and 1997 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
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
Our executive officers are elected annually by the Board of Directors. The name,
age and position of each of our executive officers and directors at August 31,
1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Marshall D. Sorokwasz 56 Chairman of the Board, President, Treasurer, and
Chief Executive Officer
Richard D. Bloom 67 Senior Vice President of Operations and Director
Donald E. Jett 55 Secretary and Director
John L. Graves 55 Vice President of Manufacturing
Jeffrey W. Boren 34 Vice President of Sales, Marketing
Susan M. Atkins 50 Vice President of Finance and Chief Financial Officer
Bob L. Minyard 58 Director
Robert F. Troisio 55 Director
Jay W. Ungerman 62 Director
</TABLE>
16
<PAGE> 33
Marshall D. Sorokwasz is one of the founders of the company and has been our
President, Chief Executive Officer, and a director since our organization in
1976 and Chairman of the Board since 1996. Prior thereto, Mr. Sorokwasz held
several positions with O.E.I. Business Products of Chicago, Illinois, a
manufacturer and distributor of continuous business forms.
Richard D. Bloom is one of our founders and joined the company as Senior Vice
President of Operations and a director in 1976. Prior, thereto, Mr. Bloom spent
20 years on the production side of the computer form industry, having served as
a plant manager and production manager at his two previous employers, Data
Documents, Inc. of Hutchins, Texas, and Service Business Forms of Wichita, KS.
Donald E. Jett is also an original founder of our company and has been a
director and the Secretary of the Company since 1976. In August 1999, Mr. Jett
began working for the company as an investor relations consultant . Prior to
this, Mr. Jett worked as a consultant to Budget Cardio, a company that sold and
refurbished new and used cardiovascular exercise equipment, having served as
such since May 1994. During 1993, Mr. Jett owned and operated Uniglobe
Clocktower Travel, a travel agency in Coppell, Texas. From 1978 until May 1991,
Mr. Jett served as a Vice President and a director of Origami, Inc., a business
consumable wholesaler. Prior to working at Origami, Inc., he was a regional
sales manager for 11 years in a division of Scott Paper Company, with sales
responsibilities for 21 states.
John L. Graves was promoted to Vice President of Manufacturing in June 1986.
Prior to being elected Vice President, Mr. Graves was an Operations Manager
since he joined us in 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 our company.
Susan M. Atkins has been Vice President of Finance and Chief Financial Officer
of our company since December 1995. Ms. Atkins was Controller of our company
prior to her election as Vice President of Finance and Chief Financial Officer.
Robert E. Troisio was appointed to serve on the Company's Board of Directors in
May 1995. From June 1998 to present, he has served as President and CEO of
MedLab Accounts Receivable Services, Inc. Since September 1994, Mr. Troisio has
also served as Managing Director Emerging Businesses of Morris Anderson &
Associates, Ltd., a management consulting firm. From May 1997 to May 1998, Mr.
Troisio served as President of Hamilton Luggage RDG, Inc., a retailer of luggage
and accessories. From May 1992 to May 1996, Mr. Troisio served as an officer and
director of Taren Holdings, Inc., a manufacturer of swim and resort wear. Mr.
Troisio served as President of TR Clothing Manufacturers, Inc., a manufacturer
of women's coats, from May 1993 to November 1994. From January 1990 to February
1992, Mr. Troisio acted as Vice President and Treasurer for Forstmann & Company,
Inc., a manufacturer of woolen fabrics. Prior positions held by Mr. Troisio
include Executive Vice President of Finance and Director of Reorganization for
Basix Corporation, Assistant Treasurer for Perry H. Koplik & Sons, a paper
broker, and Director of Credit for International Paper Company, an integrated
paper mill.
Bob L. Minyard was elected to the Board of Directors on January 2, 1996. Since
1968 Mr. Minyard has served as an executive officer and a director of Minyard
Food Stores, a regional chain of grocery stores in the Southwest.
17
<PAGE> 34
Jay W. Ungerman was elected to the Board of Directors on January 2, 1996. Mr.
Ungerman has been a principal partner in a Texas law firm specializing in civil
practice since1994. In October 1998 Mr. Ungerman temporarily relocated to
Budapest, Hungry to consult with Eastern Europeans about U.S. markets.
ITEM 11. EXECUTIVE COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth information concerning the cash compensation paid
by us for services rendered during the three fiscal years ended August 31, 1999,
1998, and 1997, to our executive officers whose aggregate compensation exceeded
$100,000.
SUMMARY OF COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Number of
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation (1) Options Compensation (2)
------ --------- ------ ---------------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Marshall Sorokwasz 1999 $ 363,118 $ 0 $ 65,735(3) (4) 5,000(5) $ 3,612
Chairman of the 1998 267,580 0 184,310(3) (6) -0- 3,572
Board, President and 1997 267,583 86,000 225,000(3) (6) -0- 3,895
CEO
Richard Bloom 1999 $ 239,958 $ 0 -- 5,000(5) $ 3,135
Senior Vice President 1998 181,650 0 56,323(3) (7) -0- 2,985
of Operations 1997 181,650 43,000 67,309(3) (8) -0- 2,832
John Graves 1999 $ 113,289 $ 0 -- 5,000(5) $ 582
Vice President 1998 101,662 0 -- -0- 539
of Manufacturing 1997 101,636 15,000 -- -0- 614
Jeff Boren 1999 $ 137,175 $ 0 -- 5,000(5) $ 696
Vice President of 1998 117,190 0 -- -0- 555
Sales, Marketing 1997 117,700(9) 15,000 -- 15,000 551
</TABLE>
(1) Unless otherwise indicated, the named executive officer did not receive
perquisites and other benefits in which the aggregate amount of such
compensation exceeded the lesser of either $50,000 or 10% of the total
of annual salary and bonus reported for the named executive officer.
(2) "All Other Compensation" represents the allocation of our contribution
to the TST/Impreso, Inc. Employee 401(k) Plan for each executive
officer, based upon the distribution formula in the 401 (k) Plan, and
payment of directors fees for attending board and committee meetings.
(3) Consists of payments of one or more of the following: medical and whole
life insurance premiums; annual car allowance; and non-reimbursable
expense payments.
(4) Includes a $24,000 car allowance.
18
<PAGE> 35
(5) Options granted outside of the 1995 Stock Option Plan.
(6) Includes a total of $124,000 in non-reimbursable expense payments.
(7) Includes a $17,500 car allowance.
(8) Includes a $30,000 car allowance.
(9) Includes a total of $15,000 in quarterly bonuses, which was eliminated
as bonuses and incorporated into Mr. Boren's annual salary by a
Compensation Committee resolution, dated January 28, 1997, and was
deferred for payment into the 1998 fiscal year.
The following table shows as to the Chief Executive Officer and the other Named
Executive Officers of our company listed in the Compensation Table, information
about options granted in the 1999 fiscal year. We did not grant any stock
appreciation rights, restricted stock or performance shares.
OPTIONS GRANTED IN 1999 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
NUMBER OF
SECURITIES % OF TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR(2) ($/SH) DATE 5% 10%
- --------------------- ----------- ------------------ ----------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Marshall D. Sorokwasz 5,000(3) 12.66% 3.00 08/08/2004 $4,144 $9,157
Richard D. Bloom 5,000(3) 12.66% 3.00 08/08/2004 $4,144 $9,157
John L. Graves 5,000(3) 12.66% 3.00 08/08/2004 $4,144 $9,157
Jeffrey W. Boren 5,000(3) 12.66% 3.00 08/08/2004 $4,144 $9,157
</TABLE>
(1) The actual value, if any, an executive may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised.
(2) Includes options granted from the 1995 Stock Option Plan and options granted
outside of the plan.
(3) On January 26, 1999, the Board of Directors granted the President authority
to grant non-plan stock options at fair market value at the date of grant,
representing a maximum of 250,000 shares of Common Stock. As of December 1,
1999, options representing 35,000 shares had been granted to officers and
employees of TST/Impreso. Options granted have a term of five years, subject
to earlier termination related to termination of employment and vest in 50%
increments over a two year period.
AGGREGATE OPTION EXERCISES IN 1999 FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at August 31, In-The-Money Options
1999 (Shares) at August 31, 1999 (1)
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------- ---------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marshall D. Sorokwasz -- -- -- -- -- --
Richard D. Bloom -- -- -- -- -- --
John L. Graves -- -- 34,800 0 $ 0 $ 0
Jeffrey W. Boren -- -- 49,650 3,750 $ 0 $ 0
</TABLE>
(1) Computed based upon the difference between aggregate fair market value as of
August 31, 1999, and aggregate exercise price.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information concerning the beneficial ownership
of Common Stock, as of November 1, 1999, by each person (including any "group"
as that term is used in Section 13(d)(3) of the Securities Exchange Act of
1934), who owned beneficially more than 5% of any class of our outstanding
voting securities, each director and nominee for election as a director, all
named executive officers in the Summary Compensation Table and all of our
directors and executive officers of the company, as a group, and their
respective share holdings as of such date.
19
<PAGE> 36
<TABLE>
<CAPTION>
Shares of Common Stock Percent
Name Beneficially Owned (a) of Class
---------------------- --------
<S> <C> <C>
Marshall D. Sorokwasz 2,354,600 (b) 44.49%
118 Cottonwood Drive
Coppell, TX 75019
Richard D. Bloom 788,320 14.89%
3100 Hillside
Highland Village, TX 75067
Donald E. Jett 645,850 12.20%
100 Cottonwood Drive
Coppell, TX 75019
Robert F. Troisio 2,750 (c) (d)
Bob L. Minyard 2,250 (e) (d)
Jay W. Ungerman 2,530 (f) (d)
Jeffery W. Boren 50,650 (g) (d)
John L. Graves 34,800 (h) (d)
All Directors and Executive Officers as a 3,890,750 (i) 72.15%
Group (nine persons)
</TABLE>
(a) Except as indicated in the following footnotes, each of the persons
listed above has sole voting and investment power with respect to all
shares shown in the table as beneficially owned by them, subject to
community property laws where applicable.
(b) 2,333,360 of these shares are voted by Mr. Sorokwasz as Trustee for
the Sorokwasz Irrevocable Trust. This number does not include 15,750
shares owned by Mr. Sorokwasz' wife, as to which Mr.
Sorokwasz disclaims any beneficial interest.
(c) Includes 2,250 shares issuable upon the exercise of stock options,
exercisable within 60 days, held by Mr. Troisio. See "Employee
Benefit Plans - 1995 Stock Option Plan."
(d) Less than 1%.
(e) Consists of 2,250 shares issuable upon the exercise of stock options,
exercisable within 60 days, held by Mr. Minyard. See "Employee
Benefit Plans - 1995 Stock Option Plan."
(f) Includes 1,750 shares issuable upon the exercise of stock options,
exercisable within 60 days, held by Mr. Ungerman. See "Employee
Benefit Plans - 1995 Stock Option Plan."
(g) Includes 49,650 shares issuable upon the exercise of stock options,
exercisable within 60 days, held by Mr. Boren. See "Employee Benefit
Plans - 1995 Stock Option Plan."
(h) Consists of 34,800 shares issuable upon the exercise of stock
options, exercisable within 60 days, held by Mr. Graves. See
"Employee Benefit Plans - 1995 Stock Option Plan."
(i) Includes 99,700 shares issuable upon the exercise of stock options
exercisable within 60 days.
20
<PAGE> 37
There were 5,292,780 shares of the registrant's common stock outstanding as of
November 1, 1999 and there has been no significant change in stock ownership or
control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Marshall Sorokwasz, Chairman of the Board, CEO and President, has personally
guaranteed our indebtedness to various lenders, including the $13 million
revolving line of credit.
Advanced Business Graphics, Inc. is our customer and supplier and is owned in
its entirety by Mr. Sorokwasz's wife, Kristine Sorokwasz. In fiscal 1999 we paid
Advanced $57,600 for the production of certain business consumables we use. We
also sold to Advanced goods and services totaling $417,600. All of these
transactions were at prices equal to fair market value as of the date of each
sale or purchase. Mr. Sorokwasz disclaims all beneficial interest in Advanced.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statements of the Company filed in this Annual Report
on Form 10-K are listed in Item 8.
2. Financial Statement Schedules:
The financial statement schedules of the Company filed in this
Annual Report on Form 10-K are listed in the attached Index to
Financial Statement Schedules.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report on
Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K
No report on Form 8-K was filed during the last quarter of the period
covered by this report.
21
<PAGE> 38
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: December 10, 1999
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, December 10, 1999
- ------------------------ President, Principal Executive
Marshall D. Sorokwasz Officer, and Treasurer
/s/Richard D. Bloom Senior Vice President of Operations, December 10, 1999
- ------------------- Director
Richard D. Bloom
/s/Donald E. Jett Secretary, Director December 10, 1999
- -----------------
Donald E. Jett
/s/Susan M. Atkins Vice President of Finance, December 10, 1999
- ------------------ Principal Financial Officer,
Susan M. Atkins Principal Accounting Officer
/s/Jay W. Ungerman Director December 10, 1999
- ------------------
Jay W. Ungerman
/s/Robert F. Troisio Director December 10, 1999
- --------------------
Robert F. Troisio
/s/Bob L. Minyard Director December 10, 1999
- -----------------
Bob L. Minyard
</TABLE>
<PAGE> 39
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 Registration 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 January 27, 1999, between the
Company and Marshall Sorokwasz (incorporated by reference
to Exhibit 10(b) of Form 10-Q dated February 28, 1999)
10(c)+ IBM Brand Paper Trademark Licensing Agreement and Amendment
Number 1 thereto, effective as of April 30, 1997, between
the Company and International Business Machines Corporation
(incorporated by reference to Exhibit 10(c) of Form 10-Q/A,
dated May 31, 1997)
10(d)+ Amendment Number 2, dated March 5, 1999, to the IBM Brand
Paper Trademark Licensing Agreement between the Company and
International Business Machines Corporation (incorporated
by reference to Exhibit 10(d) of Form 10-Q/A dated February
28, 1999)
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 has been granted for certain portions of this Exhibit
<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 20, 1999. 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 20, 1999
S-2
<PAGE> 42
SCHEDULE II
TST/IMPRESO, INC. AND SUBSIDIARIES(a)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
<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, 1999:
Allowance for doubtful accounts $ 190,000 $ 85,000 -- $(144,603)(b) $ 130,397
Total reserves and allowances $ 190,000 $ 85,000 -- $(144,603) $ 130,397
--------- --------- --------- --------- ---------
August 31, 1998:
Allowance for doubtful accounts $ 130,000 $ 120,000 -- $ (60,000)(b) $ 190,000
Total reserves and allowances $ 130,000 $ 120,000 -- $ (60,000) $ 190,000
--------- --------- --------- --------- ---------
August 31, 1997:
Allowance for doubtful accounts $ 163,633 -- -- $ (33,633)(b) $ 130,000
Total reserves and allowances $ 163,633 -- -- $ (33,633) $ 130,000
--------- --------- --------- --------- ---------
</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.
S-3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 22,629
<SECURITIES> 11,088
<RECEIVABLES> 6,426,385
<ALLOWANCES> 130,397
<INVENTORY> 18,801,015
<CURRENT-ASSETS> 25,854,703
<PP&E> 16,845,961
<DEPRECIATION> 9,635,739
<TOTAL-ASSETS> 33,084,378
<CURRENT-LIABILITIES> 17,153,968
<BONDS> 0
0
0
<COMMON> 53,038
<OTHER-SE> 12,520,235
<TOTAL-LIABILITY-AND-EQUITY> 33,084,378
<SALES> 59,555,595
<TOTAL-REVENUES> 59,555,595
<CGS> 51,894,341
<TOTAL-COSTS> 51,894,341
<OTHER-EXPENSES> (41,971)
<LOSS-PROVISION> 130,397
<INTEREST-EXPENSE> 832,539
<INCOME-PRETAX> 1,264,727
<INCOME-TAX> 490,375
<INCOME-CONTINUING> 774,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 774,352
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
