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SECURITIES AND EXCHANGE COMMISSION  FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended August 31, 2004 OR [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the transition period  Commission File Number 000-29883 Impreso, Inc. (Exact name of registrant as specified in its charter)  Delaware
    
    75-2849585(State or other jurisdiction of
    
    (I.R.S. Employerincorporation 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. [ ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X] The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 27, 2004, based upon the closing sale price of the
Common Stock as reported on the NASDAQ Small Cap Market, was approximately $
5,777,068 There were 5,278,780 shares of the registrants Common Stock outstanding as of
December 13, 2004. DOCUMENTS INCORPORATED BY REFERENCE The registrant has incorporated by reference into Part III of this Form 10-K
portions of its definitive Proxy Statement for its Annual Meeting of
Shareholders on January 25, 2005. Except with respect to information
specifically incorporated by reference into this Form 10-K, the Proxy Statement
is not deemed to be filed as a part hereof.




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERSITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM. 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM. 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM. 14 PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-KINDEX TO EXHIBITSINDEX TO CONSOLIDATED FINANCIAL STATEMENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSINDEX TO FINANCIAL STATEMENT SCHEDULESREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMVALUATION AND QUALIFYING ACCOUNTSSIGNATURESINDEX TO EXHIBITSSubsidiaries of the RegistrantCertificate of CEO Pursuant to Section 302Certificate of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
 PART I 
 ITEM 1. BUSINESS GENERAL Impreso, Inc. is the holding company of TST/Impreso, Inc. (TST), a
manufacturer and distributor to dealers and other resellers of various paper
and film products for commercial and home use in domestic and international
markets, Hotsheet.com, Inc., the owner of Hotsheet.com®, an online web
reference directory, and Alexa Springs, Inc. (Alexa) the companys natural
spring water bottling subsidiary. The primary operating company, TST, was founded in 1976. TST operates in the
hard copy supply market, which encompasses those products used with a hard copy
output or imaging device. Approximately 98% of TSTs total output is
initially sold domestically. Independent resellers purchase and may further
distribute the products internationally. Through its four manufacturing
facilities and 50 public distribution warehouse locations throughout the United
States and in Quebec, Canada, TST manufactures and distributes its products
under its own IMPRESO® label, generic labels and private labels. In April
1997, TST entered into a non-exclusive Trademark Licensing Agreement with
International Business Machines Corporation (IBM) for the manufacture and
distribution of a selected line of paper products. In 2003, this agreement was
extended to 2007. On December 1, 2004, International Business Machines, Inc
(IBM) and TST/Impreso, Inc. (TST) agreed to terminate their Trademark
Licensing Agreement. The hard copy imaging business is a very competitive industry. Advances in
hardware and imaging material technology have accelerated business and public
consumption of new types of products and are changing the industrys customers,
products and channels of distribution. TST has strategically located its
distribution points so that it can deliver its products to customers in most
major cities in the United States within 24 hours. TST has approximately 3,800
customers, ranging in size from small business forms dealers to large office
product wholesalers with multiple offices and branches. An increasing segment
of our customer base has been large and medium size mass merchants, including
computer and office superstores. Our primary method of generating sales
contacts is through our own sales force, manufacturers sales representatives,
extensive marketing programs, referrals and reputation. Another subsidiary, Hotsheet.com, Inc., owns and operates the Hotsheet.com web
portal. Hotsheet® is an internet website directory, or portal, specializing
in listing popular and useful web destinations utilized by a wide general
audience. The 11 primary categories provide over 500 links to premier sites.
Hotsheet is unique due to the single-page presentation of the main directory. Services provided by Hotsheet.com include Hotsheet Super Search, a
meta-search that combines results from multiple web search engines and ranks
them by relevance, and My Hotsheet, a unique method of bookmark management that
lets users create their own personalized page of categorized favorite links.
For the years ended August 31, 2004, 2003 and 2002, net sales of Hotsheet.com,
Inc. amounted to $186,903, $158,755, and $122,629, respectively. 2




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Our newest wholly owned subsidiary, Alexa Springs, Inc. will produce bottled
natural spring water from the Ouachita Mountains near Mt Ida, Arkansas.
Distribution of Alexa water is scheduled to begin in December 2004. Initially,
we will sell the water in one-half liter bottles packaged in a shrunk wrapped
24 count case. The distribution model of the water project is identical to our
paper products; the weight and width of the pallets of each are identical and
the target customers are the same. TSTS PRODUCTS The product lines during the fiscal year ended August 31, 2004 (Fiscal 2004)
consisted of the following: Continuous Computer Stock Business Forms. We maintain a wide variety of
standard continuous computer stock business forms in various types of papers,
formats for readability and contrast, and basis weights. Upon request, we
occasionally produce customized forms for larger customers. Thermal Facsimile Paper. Our thermal facsimile papers are suitable for use
with all original equipment manufacturers (OEMs) machines currently on the
market and are warranted against damage that the paper may cause to a
customers thermal facsimile machine. Cut Sheet Paper for use in Laser Printers, Copying Machines and Plain Paper
Facsimile Machines. We convert cut sheet products, including IMPRESO Lazer Cut
Sheets®. Cut Sheet Paper for use in Ink Jet Printers. We manufacture two types of ink
jet paper, coated and un-coated. Coated ink jet paper, in both glossy and
matte, is designed for superior high resolution color graphics and photographic
reproductions. Uncoated ink jet paper is primarily used for traditional
monochrome applications. Digital Photo Ink Jet Paper. Used for printing images from digital cameras,
photo CDs, the Internet, or desktop scanners. Gloss Coated Ink Jet Paper. Gloss coated on one side for brilliant,
high-contrast color images with photographic detail and matte on the reverse
side for text and graphics. Gloss Opaque Ink Jet Film. A stable and long-lasting film for printing any
ink-generated image. Its high gloss finish prints brilliant color images and
its matte side prints text and graphics. Ink Jet Coated Canvas. A textured product which creates the appearance of a
painted surface. Transparency Film for Ink Jet Printers. Clear film specially coated for
smudge/bleed-free color or black ink jet imaging. Transparency Film for Copier and Laser Printers. Overhead transparencies can
be created using a plain paper copier and this film. Transparency Film for Color Laser Printers. Designed specially for color laser
applications; the unique coating controls absorption of color, creating high
quality full color overhead 3




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transparencies. T-Shirt Transfers. A computer and ink jet printer can create personalized
designs for applications on various cotton materials. Point of Sale and Cash Register Machine Rolls. Available in both thermal and
plain paper. Fine Cotton Business Stationery Line. Fine cotton business stationery for sale
at the retail level.
High Speed Laser Roll Paper. High speed laser roll paper is specifically
engineered for high speed roll fed printing systems, such as IBMs Infoprint®
family of continuous-feed printing systems like the Infoprint 3000, Infoprint
4000, and Infoprint 4100. In addition, this paper can be used in Xerox® or
OCE® systems. These rolls are used by companies, such as investment banking
institutions and publishing companies, for variable data output applications,
such as customized statements and book publishing. The advantages of using high
speed roll fed printing systems for mass production over traditional methods of
offset printing are lower costs and faster speeds of production without
sacrificing image quality. Wide Format Engineering Rolls. Available in three different grades of paper,
bond, vellum and translucent bond, and in a variety of widths and lengths.
These products are used with wide format printing and copying equipment, such
as those used by architectural and engineering firms for design plans and
renderings. The introduction of engineering rolls represents our entry into
the rapidly growing wide format printing market. This product category also
opened a new channel of distribution through computer-aided design (CAD) supply
dealers. Wide Format Ink Jet Media. Available in a wide variety of coated papers and
films used for full color graphic signage and display. Processed Laser Cut Sheets. Laser cut sheets are micro-perforated and/or
pre-punched cut sheets used in copiers, laser printers and ink jet printers for
applications such as return/reply promotional materials, billing and remittance
statements, or coupons. Users can keep printing projects in-house by
eliminating the use of outside sources for custom forms. Ink Jet Greeting Cards. Pre-scored white card stock in matte and glossy
finishes, packaged with matching envelopes. Ink Jet Bumper Stickers. Coated vinyl bumper sticker material for use in ink
jet printers to create personalized bumper stickers. Photo Quality Business Card Size Magnets. Photo quality, magnet stock is die
cut into business card size pieces. Excellent for producing business card size
magnets, magnets with important phone numbers and photo magnets. Magnets can
be affixed to all metal surfaces including refrigerators, lockers, etc. Bulk Bin Packaging of Wide Format Engineering Rolls. Packaged for large users
to buy in bulk and conveniently store. Expanded Line of Wide Format Ink Jet Media. Additional SKUs with expanded
widths and 4




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lengths to accommodate new printer capabilities within the market. Outdoor Banner Material. Part of our Wide Format line of products, specially
designed surface for use by retail signage shops and in-house sign production. Complete Line of ATM Rolls. Expansion of our Point of Sale products for
automated teller machines servicing the financial market. CD/DVD Sleeves. Die cut sheeted paper with adhesive strips for printing and
assembling customized CD/DVD protective sheaths. CD/DVD Labels. Pre-formatted, die cut adhesive paper for printing CD/DVD
labels. Ink Jet Address Labels. Pre-formatted, die cut adhesive paper for printing ink
jet address labels. Two sided Glossy Coated Ink Jet Paper. Gloss coated on both sides for
brilliant, high-contrast color images with photographic detail. Professional Grade Ultimate Glossy Photo Paper. Designed for ink jet
printers, this ultra-bright, 100-plus whiteness paper creates a true
photograph look and feel for high-end applications. File Folders. Manila folders available in letter and legal size. Rolodex and Index cards. 99 Brite Ultimate InkJet and Ultimate Laser Paper. Twenty-four pound
ultra-bright paper for laser, ink jet, and multi-functional equipment. Recycled Computer Paper Line. Three recycled grades introduced with varying
brightnesses, including an 84 bright, 30% post-consumer waste product which
meets governmental agencies recycled requirements. Custom Printed Point of Sale/Add Rolls (Company logo, return policy, etc.) Crayola Brand Print & Color Specialty Fun Papers: Includes Crayola T-Shirt
Transfers, Crayola Greeting Cards with Envelopes, Crayola Glossy Photo Paper,
Crayola Classic Colors, Crayola Assorted Brights and Pastels, Crayola Cling
Art, Crayola Stardust Magnets and Stickers, Crayola Stardust Paper and Crayola
Repositional Stickers. TSTS TRADEMARK LICENSE In April 1997, TST entered into a non-exclusive Trademark Licensing Agreement
with IBM. Under this agreement TST manufactures and distributes a selected
line of paper products within the United States, Canada and Mexico under the
IBM brand name. Through various amendments the authorized product lines have
been expanded and the term was extended to April 30, 2007. On December 1, 2004,
International Business Machines, Inc (IBM) and TST/Impreso, Inc. (TST) 5




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agreed to terminate their Trademark Licensing Agreement. TSTS MARKETING AND DISTRIBUTION TST markets its products to approximately 3800 customers through its own sales
force and established manufacturers representatives. TSTs targeted customers
are business consumable and office machine dealers and large and medium size
mass merchants, including computer and office superstores. We are continually
seeking to diversify our customer base and distribution channels. The
incorporation of non-traditional but related product categories into our
expanding product line may facilitate our access to different distribution
channels. TST has 54 distribution points (50 public distribution warehouses and four
manufacturing locations), which enable it to deliver products to most major
cities in the United States within 24 hours. TSTs primary method of
generating revenue is through its own sales force. The members of this sales
force generally seek business within specific geographic territories.
Manufacturers representatives serve as an important supplementary source of
sales and marketing. Their territories are identified by specific accounts or
prospects, primarily those of a retail nature. TST sells to the following types of customers:  
    
    Business Forms Dealers  Businesses that primarily buy and resell
various types of business forms. Examples include Standard Forms,
American Business Forms and Better Business Forms.  
    
    Wholesale Stationers  Businesses that supply a large variety of
office products to office product dealers. Wholesale stationers
generally do not sell directly to the end user. Examples include
United Stationers, and SP Richards.  
    
    Office Products Dealers  Businesses that generally purchase a
majority of their products from wholesale stationers, but often
negotiate directly with manufacturers. Examples include Navrats
Office Products and Crest Office Supply.  
    
    Paper Merchants  Businesses that sell all types of papers to printers
and dealers and directly to end users. Examples include Unisource,
Xpedx and Ris Paper.  
    
    Consumer Electronics Stores  Businesses that sell retail to the end
user in a broad spectrum electronics environment. Examples include
Fryes, Best Buy and CompUSA.  
    
    Mass Merchants  Discount department stores with retail sections that
sell computer, copier and facsimile related supplies. Examples
include Kmart and Army and Air Force Exchange Service.  
    
    Grocery and Drug Store Chains  Businesses that sell computer
consumables as a convenience to its customer and secondary sale to its
primary target product. Examples include Walgreens, Kroger and
Rite-Aid.  
    
    Wholesale Clubs/Office Superstores  Businesses that sell large
quantities of inventory at or 6




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near wholesale prices to end users and dealers. These stores generally do
not provide the credit, delivery and other types of services and support to
the extent that wholesale stationers provide their customers. Examples
include Staples, Costco and BJs.  
    
    Buying Groups  Groups of dealers, ranging from ten to 400 members,
that combine their buying power to receive, among other things, volume
discount pricing and rebate incentives from manufacturers. Examples
include Independent Stationers and Association of Independent Printing
Paper Merchants.  
    
    Computer Aided Design (CAD) Supply Dealers  Dealers that typically
sell wide format supplies and papers to architects and engineers.
Examples include CAD Supply Specialty and IMPACO.  
    
    Contract Stationers  Companies that offer a complete catalog of
office and business supplies generally to large corporations. In many
cases, various types of products are bundled and sold under contract.
Examples include Corporate Express, Boise Cascade Office Products and
Staples.  
    
    Cash Register Dealers  Dealers that sell cash register systems and
point of sale supplies to businesses such as restaurants and retail
vendors. Examples include Impact Paper, USA Paper and Columbia Paper
& Ribbon. Though TST has specialized in select markets and has emphasized service and
long-term relationships to meet customer needs more effectively, there are no
long-term contractual relationships between it and any of its customers. One
customer, Staples, Inc. (Staples) accounted for more than 10% of TSTs sales
in the years ended August 31, 2004, 2003 and 2002. Subsequent to this Form
10-K reporting period, September, October, and November 2004, purchases by
Staples decreased significantly. The reduction is expected to be equivalent to
approximately $20 million in annual sales. Management believes that this
reduction in sales may materially adversely affect our financial position,
results of operations and cash flows in Fiscal 2005. TST may in the future be
dependent on other significant customers, the loss of which could also
materially adversely affect our financial position, results of operations and
cash flows. On December 1, 2004, International Business Machines, Inc (IBM) and
TST/Impreso, Inc. (TST) agreed to terminate their Trademark Licensing
Agreement. This decision was a result of IBM adding other converters to the
program, IBMs refusal to provide account protection, and IBMs continuing
request for guaranteed fees. TSTs IBM product sales were approximately 11% in
the Fiscal year ended August 31, 2004. TST has approximately eight months to
liquidate its IBM branded paper products inventory. INVENTORY MANAGEMENT; RAW MATERIALS OF TST We believe that it is necessary for TST to maintain a sufficient inventory of
finished goods and raw materials to adequately service its customers. In recent
years inventory levels had been increased to facilitate the introduction of new
brands and expanded product lines. At the beginning of the year ended August
31, 2002 (Fiscal 2002), we implemented a program to reduce inventory and
reduced inventory levels by $4.35 million. This is in addition to the depletion
of $3 7




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million of inventory acquired in the purchase of the assets of United Computer Supplies,
Inc. in April 2002. We reduced inventory levels in the fiscal year ending
August 31, 2003 (Fiscal 2003) by $5.6 million, and the year ended August 31,
2004 (Fiscal 2004) by $5.8 million. In recent years we have depended primarily on domestic vendors of raw
materials, which historically charge higher prices for raw materials than
international vendors. Prices for raw materials decreased through the first
quarter of Fiscal 2004, but in the second quarter of Fiscal 2004 they
stabilized and started an upward trend. In February 2004, domestic and
international mills announced a price increase that went into effect on March
1, 2004. Other increases were announced by the mills that went into effect on
May 1, 2004 and July 1, 2004. These increases were effectively passed through
to a majority of our customers. We believe that prices will continue to
increase in Fiscal 2005. TST bears the risk of increases in the prices charged by its suppliers and
decreases in the prices of raw materials held in its inventory. If prices for
products held in its finished goods inventory decline, if prices for raw
materials required by it increase, or if new technology is developed that
renders obsolete products distributed and held in inventory by TST, the
Companys business could be materially adversely affected. TST purchases raw paper, coated thermal facsimile paper, coated technical
paper, carbon and carbonless paper (consisting of a wide variety of weights,
widths, colors, sizes and qualities), transparency film, packaging and other
supplies in the open market from a number of different companies around the
world. We believe that TST has adequate sources of raw material supplies to
meet the requirements of its business. We believe that TST has a good
relationship with all of its current suppliers. MARKET CONDITIONS OF TST The primary product produced by the Company is continuous feed business forms.
Management believes that the market for business forms, which declined in 2004,
will continue to decline in 2005. Our percentage of revenue derived from this
product decreased from 62% in Fiscal 2003 to 53% in Fiscal 2004. Management
expects this product categorys contribution percentage to sales to decline
substantially further in Fiscal 2005, partially due to the reduction of the
Staples business. Competitors in the marketplace have aggressively solicited and bid customers of
the Companys products. Some of these competitors are vertically integrated and
have competitive pricing advantages, which is changing how the marketplace does
business and is squeezing margins despite the increase in paper prices. The loss of significant customers, mergers of customers, and loss of portions
of business from certain customers has reduced sales in Fiscal 2004, and
management believes it will also have a significant impact in Fiscal 2005. To
replace these lost sales, we are focusing our marketing efforts on more
profitable portions of the business. In the business imaging product line,
management believes that wide format rolls and point of purchase rolls have the
greatest potential for growth. 8




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The Company also believes that its entrance into the bottled water business is
significant as we begin the diversification of our product offerings out of
continuous computer paper. The introduction of water into our paper business is
an ideal companion sale as the distribution model for our water products is
substantially similar to our paper products. Many of the customers who are
currently purchasing business imaging supplies from us also buy bottled water.
The weight and dimensions of a pallet of water and paper, and therefore the
costs, are also similar. The introduction of water should expand our sales to
our existing customers. The bottled water business has experienced phenomenal
growth in the past few years. We plan to effectively compete in the wholesale
market by offering competitive price points on our water products. One of our larger customers filed a Chapter 11 bankruptcy on May 7, 2003, owing
us approximately $450,000. This amount was written off as bad debt expense in
Fiscal 2003. In July 2004, the Company was served with a notice of a preference
claim of approximately $1.2 million by the debtors bankruptcy trustee. We
believe this is a gross preference demand without the Trustee analyzing easily
discovered offsets. A request for details on the claim has been made to the
Trustee without response. Due to the range of remittance dates by the debtor
before and during the preference period, we believe we will be successful in
litigation with the trustee of the estate for this alleged preference with the
ordinary course of business defense available under the Bankruptcy Code. The
amount that will be found to be an actual preference is unknown as of the date
of this filing. SEASONALITY TST may be subject to certain seasonal fluctuations in that orders for products
may decline over the summer months. If the market for finished goods
decreases, then the adverse impact of the seasonal fluctuations on the Company
will be greater. Hotsheet.com revenues are partially generated by retail sales which are
typically stronger during the Christmas holiday season. The bottled water business is subject to seasonal fluctuations with its demand
cycle greatest in summer months. TSTS BACKLOG The dollar value of TSTs order backlog as of August 31, 2004 and 2003 was
approximately $2.8 million and $ 3.2 million, respectively. TSTs ability to
fill orders is directly impacted by the general cyclical pattern of the paper
industry and its ability to purchase the raw materials and finished goods
necessary to fill customer orders. The increase in backlog is related to TSTs
increased net sales. TSTS COMPETITION TST competes with a number of other business organizations within the paper
industry, some of which have substantially greater financial, human and other
resources. TST currently competes principally with manufacturers that
distribute their products through dealers, resellers and/or retailers and, to a
lesser extent, manufacturers who distribute their own products directly to 9




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end-users. Weak industry conditions in the past few years have caused the major
direct-selling companies, which are much larger than TST, to sell direct and to
dealers. In some cases, this has led to TSTs customers reducing their selling
prices to compete with these dealers. This has also caused increased
competition among companies selling products through dealers. In addition,
vertical consolidation among entities in the paper industry has created tougher
conditions for TST, because certain of TSTs suppliers have subsidiaries that
compete with TST and these suppliers generally support the efforts of their
subsidiaries. Finally, in the changing environment of the hard copy supply
industry, advancing technology has contributed to the competition as companies
must commit resources to obtain new equipment in order to convert the evolving
types of business consumables required by the advancement of technology, to
expand facilities to house the increasing number of types of products available
and for just-in-time inventory purchasing practices of customers. We have remained competitive by incorporating the manufacture and distribution
of technical and high recognition branded paper products into our line. The
addition of technical products has positioned TST as a supplier of business
consumables at the initial growth stages of the technologys introduction into
the market and, therefore, at the greatest opportunity for strong profit
margins and growth in unit sales. Sales of branded products benefit from brand
loyalty and name recognition. Since we began the manufacture and distribution
of technical and trademark licensed branded products, and have penetrated new
distribution channels with our expanding product lines, we believe that in the
future the companies we 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 TST effectively competes on the basis of the following: its
nationwide distribution network, which enables products to be delivered to its
customers in most major cities in the United States within 24 hours; its larger
number of inventory items providing customers cost-effective, efficient
purchasing and volume discounts; and by providing high-quality products and
customer-oriented services. TRADEMARKS TST uses the trademark IMPRESO, a Spanish word meaning printed matter, on
certain products it manufactures and distributes. The trademark and service
mark is registered in the United States. These registrations are effective
until August 2009 and May 2010, respectively. The IMPRESO trademark is also registered in Canada and Great Britain. These
foreign registrations are effective until July 2007 and October 2007. The
foreign registration renewal for the IMPRESO trademark in Italy has been
submitted, but we have not received the certificate from the Italian
administration. An application to register the IMPRESO trademark under the new
European Community Trademark regulations, which was filed July 19, 2000, was
denied and subsequently abandoned due to the generic meaning of the word
impreso in Spain and Portugal. Management believes that the IMPRESO
trademark has significant name recognition and is important in marketing and
achieving visibility of TSTs products. The goodwill value associated with the
name IMPRESO has been pledged as an asset to TSTs current primary secured
lender under TSTs revolving line of credit. 10




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TST also has a trademark registration in the United States for Lazer Cut
Sheets® and Lazer Bond®, effective until May 2007. Each of the Lazer Cut
Sheet and Lazer Bond trademarks are applied only to one specific product that
TST manufactures. The United States service mark registration obtained on Hotsheet, our
subsidiarys proprietary Internet portal, is effective until January 2008. The
European Community Trademark registration for Hotsheet.com is effective until
February 2010. The United States service mark registration for Shopsheet®, a
sub portal of Hotsheet.com, is effective until February 2010. The acquisition of Uniteds assets in March 2002 included one United States
trademark: Computer Paper, Computer Paper, which registration was effective
until December 2003. SERVICE AND SUPPORT We believe that customer service is an important factor in product sales and
customer satisfaction. Service and support include TSTs own in-house trucking
which back-hauls goods for other entities, which reduces transportation costs
and improves customer service. Our in-house graphics department can design and
prepare layouts of packaging and can produce negatives, which allows TST speed
and flexibility when bringing new products or packaging into the marketplace.
TST also sells its graphics capabilities to its customers. TSTs customer
service department can expedite service because its computer system sends a
bill of lading by facsimile to the appropriate distributing warehouse and an
order acknowledgment to the receiving customer when an order is entered by a
customer service representative. TSTs computer system automatically
calculates inventory levels at each warehouse and the amount of raw materials
it must purchase, and identifies which of its plant locations will manufacture
an order. TST also has a collection and credit department. The staff evaluates
extensions of credit and makes written and verbal requests for payment from
those customers whose invoices are not paid within agreed payment terms.
In-house counsel is available to assist the credit department in difficult
collections. TST offers a 120-day warranty on all of its products. To date, warranty expense
has been minimal. ENVIRONMENTAL REGULATION We believe that compliance with any environmental regulations that may be
applicable to us will not have a material adverse effect on our capital
expenditures, earnings or competitive position. EMPLOYEES We had 295 full-time employees at August 31, 2004 of whom approximately 70% are
engaged in manufacturing TSTs products. None of our employees are currently
covered by a collective bargaining agreement. We consider our employee
relations to be good as a result of an organizational structure which
encourages individual initiative as well as team work. 
 ITEM 2. PROPERTIES 11




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TST operates four manufacturing plants encompassing an aggregate of
approximately 690,000 square feet of space. The Coppell, Texas, facility,
where our executive offices are located, is approximately 75,000 square feet.
TST owns two of its manufacturing plants, Coppell, Texas and Itasca, Illinois.
The Coppell plant mortgage matures in 2011, and the Itasca facility matures in
2009. In April 2004, the Company sold its two buildings in Fontana, California
to an unrelated party as part of a sales-leaseback transaction. The
transaction has been accounted for as a sale, although the gain associated with
the sale has been deferred in accordance with sales-leaseback accounting and is
being amortized over 60 months, which represents the life of the related lease
agreement. TST leased the two adjacent buildings in Fontana, California, for
concurrent five year terms ending 2009. The Company also leases the
Chambersburg, Pennsylvania facility and that leases initial term expires in
2017. Both the Fontana and Chambersburg leases have options to extend.
Subsequent to 2004, TST exited two facilities that it owned, Kearneysville,
West Virginia and Greencastle, Pennsylvania, and has placed these buildings on
the market to be sold. In Fiscal 2004, TST was leasing under month to month
leases a facility in Elk Grove, Illinois and warehouse space in Dallas, Texas.
The Elk Grove location was vacated. Annual mortgage payments and minimum lease
payments relating to these facilities were approximately $1.6 million in Fiscal
2004 and 768,495 in Fiscal 2003. Costs incurred for the 50 public distribution
and 7 storage warehouses TST utilizes throughout the United States and in
Quebec, Canada was approximately $751,000 for Fiscal 2004. We believe the current facilities are in good condition, and are suitable and
adequate for current business needs. We estimate that, as of August 31, 2004,
TST was operating at approximately 50% capacity for all of the products it
manufactures, which will allow it to increase production to meet increased
demand, if any, with no immediate capital investment. Our Hotsheet operation is currently operating from our headquarters at the
Coppell, Texas facility and through its internet service providers located in
Dallas, Texas and Providence, Rhode Island. 
 ITEM 3. LEGAL PROCEEDINGS Legal- On September 18, 2002, TST filed a lawsuit against a vendor in the United
States District Court for the Northern District of Texas  Dallas Division.
TSTs general claim is that the vendor breached a Distributor Agreement entered
into with TST in several material respects, including the vendors late
delivery of paper products, the vendors delivery of defective product, and the
vendors failure to properly credit TSTs accounts based upon these and other
alleged breaches. The vendor responded to TSTs demand for arbitration by
generally denying TSTs claims and asserting a counterclaim seeking to recover
disputed accounts receivable and damages related to TSTs alleged interference
with the vendors relationship with its lender. The Trial is set for March
2005. TST is a defendant in a suit filed in Fiscal 2003 for the collection of sums
due under two promissory notes. These liabilities are included on the
Companys balance sheet. TST prevailed in its motion to stay the adversary
proceeding and to compel arbitration in Dallas, Texas under the terms of the
parties purchase agreement. TST asserts that liability does not exist because
of fraud and contractual breaches in connection with the agreements. No
arbitration date has been set. 12




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On November 5, 2003, the Company discovered the Companys payroll
administrator was
fraudulently diverting Company funds into her personal bank accounts. The
investigation revealed
a loss of approximately $627,000 over a period starting in September 2000
until October 2003. In
November 2004, the Company and the current insurer executed a settlement for
$253,000, without
waiving each partys rights to proceed to suit or defend on the balance of the
Companys losses.
We believe recent legal developments could be persuasive in litigating
different interpretations of
defined terms within the policy. On November 19, 2004, the employee was
sentenced to prison,
ordered to remit to the Company $70,000 of known funds held in her name, and to
pay restitution
in full. In December 2003, TST/Impreso, Inc. entered into a settlement agreement with
a customer due to
a dispute concerning catalog fees. The settlement requires TST to issue a
credit memo to the
customer for the purchase of products in the amounts of $50,000, $25,000 and
$25,000 on
December 31, 2004, June 30, 2005, and December 31, 2005, respectively. These
amounts are
included in the accrued liabilities. In April 2004, TST filed
a lawsuit in the 68th judicial district Dallas
County against two former
outside sales representatives and a competitor, alleging breach of fiduciary
duty, tortious
interference with existing and prospective business relations, and civil
conspiracy. The lawsuit
seeks to enforce the duties of loyalty owed to TST by its sales agents, and
also protect TST from
any unfair business practices of TSTs competitors. The competitor filed a
counter claim alleging
business disparagement and tortious interference with existing and prospective
business relations.
The parties to the litigation are actively conducting discovery. On July 9, 2004, TST received a Preference Claim demand from the Trustee of
the estate a former
customer in the amount of $1.2 million. No suit has been filed to date. This
demand is a gross preference demand and we believe subsequent to a full
preference analysis and the Companys utilization of various defenses, any
liability should be lowered to a materially reduced amount. The amount that
will be found to be an actual preference is unknown as of the date of this
filing. The Companys Corporate Income Tax Returns for the fiscal years ending August
31, 2001, 2002, and 2003, are currently under examination by the Internal
Revenue Service (IRS). The
IRS has proposed adjustments to the fiscal years under examination, and the
matter has been sent to the Appeals Division of the IRS. The Company does not
believe that the proposed adjustments will be upheld by the Appeals Division. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 
 PART II 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS Our common stock trades on the NASDAQ SmallCap Market (NSCM) under the symbol 13




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##### Table of Contents



ZCOM. The high and low closing prices for the common stock, as reported on the
NSCM are as follows: 2004 Fiscal Year
    
    Price RangeHigh
    
    LowFirst Quarter (Sept.  Nov.)
    
    $
    2.140
    
    
    $
    1.800Second Quarter (Dec.  Feb.)
    
    
    2.700
    
    
    
    1.830Third Quarter (Mar.  May)
    
    
    3.600
    
    
    
    2.110Fourth Quarter (June  Aug.)
    
    
    2.690
    
    
    
    2.140
 2003 Fiscal Year
    
    Price RangeHigh
    
    LowFirst Quarter (Sept.  Nov.)
    
    $
    2.50
    
    
    $
    1.92Second Quarter (Dec.  Feb.)
    
    
    2.87
    
    
    
    1.86Third Quarter (Mar.  May)
    
    
    2.20
    
    
    
    1.75Fourth Quarter (June  Aug.)
    
    
    2.40
    
    
    
    1.73
 On November 18, 2004, the closing price for the common stock on the NSCM was $
2.52 and the common stock was held by approximately 775 stockholders of record,
including holdings through nominee or street name accounts with brokers. We have not paid any dividends on our common stock since inception, and we do
not intend to pay dividends to our stockholders in the foreseeable future. Any
such dividends will be declared in compliance with the restrictive covenants of
our subsidiarys lender that no cash dividends paid during any one calendar
year shall exceed current years net profit. We also intend to reinvest
earnings, if any, in the development and expansion of our businesses. The
declaration of dividends in the future will be at the discretion of the Board
of Directors and will depend upon the earnings, capital requirements and our
financial position, general economic conditions and other pertinent factors. 
 ITEM 6. SELECTED FINANCIAL DATA The following is a summary of our selected financial data as of and for the
five years ended August 31, 2004 (Fiscal 2004). 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, 14




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2000
    
    2001
    
    2002
    
    2003
    
    2004Operations Data:Net Sales
    
    $
    73,098,956
    
    
    $
    94,177,290
    
    
    $
    119,525,362
    
    
    $
    117,222,957
    
    
    $
    103,989,229Net Income (loss)
    
    
    931,317
    
    
    
    1,246,945
    
    
    
    1,676,442
    
    
    
    617,831
    
    
    
    1,013,595Earnings (loss) per
common share:Net Income (loss)
    
    
    0.18
    
    
    
    0.24
    
    
    
    0.32
    
    
    
    0.12
    
    
    
    .19Consolidated
Balance Sheet Data:Total assets
    
    
    39,383,548
    
    
    
    62,202,597
    
    
    
    66,971,864
    
    
    
    56,336,300
    
    
    
    52,072,238Long-term
debt (excluding current maturities)
    
    
    3,782,079
    
    
    
    6,328,454
    
    
    
    10,609,790
    
    
    
    9,571,934
    
    
    
    8,391,917Stockholders Equity
    
    $
    13,504,590
    
    
    $
    14,712,643
    
    
    $
    16,416,612
    
    
    $
    17,040,890
    
    
    
    18,054,485
  (a)
    
    This schedule should be read in conjunction with our audited
Consolidated Financial
Statements and related notes thereto. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The accounting policies described below is those the Company considers critical
in preparing its consolidated financial statements. These policies require the
application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty. These judgments are
based on historical experience, the Companys observation of trends in the
industry, information provided by customers and information available from
other outside sources, as appropriate and available at the time the estimates
are made. However, as described below, these estimates could change materially
if different information or assumptions were used. The Company believes that of
its significant accounting policies, the following may involve a higher degree
of judgment or estimation than other accounting policies. Accounts Receivable (doubtful accounts) Reserves The Company provides for losses on accounts receivable based upon their current
status, historical experience and managements evaluation of existing economic
conditions. Significant changes in customer profitability or general economic
conditions may have a significant effect on the Companys allowance for
doubtful accounts. Revenue Recognition TSTs sales are recorded when products are shipped to customers. TST is
reasonably assured a 15




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majority of the sales are collectible upon shipment due to its credit policies
and collection methods. For those accounts TST is not reasonably assured of
collection the Company reserves against doubtful accounts based upon historical
experience and managements evaluation of existing economic conditions.
Hotsheet.com, Inc. generates its revenue by click through fee advertising
revenues and commissions earned. Click through fees are generated when traffic
is sent from the Hotsheet.com website, via a link, to a vendors website.
Commissions are generated when the linked traffic makes purchases. The revenue
is recognized upon receipt. Inventories Inventories are valued at the lower of cost or market, cost being determined on
the first-in, first-out method. Reserves for slow moving, obsolete products, or
bad (damaged) products are based on historical experience, acquisition
activities, and analysis of inventories on hand. The Company evaluates, and if
necessary, adjusts reserves quarterly. Reserves for slow moving, obsolete products, or bad (damaged) products are
based on historical experience, acquisition activities, and secured lender
policies. The Company has not typically reserved for slow moving, obsolete or
bad inventories, because substantially all of its slow moving products can be
repackaged into different formats or labels, or demand for products that are
associated with obsolete technology slowly decline as sales of new hardware
requiring new or different consumables increase. The reduced demand for
products which are becoming obsolete is easily monitored and scheduled
production of these items is adjusted accordingly. If damage is caused to a
product it is most often minor in value and expensed as damage occurs. Due to
acquisition activities in 2001 and 2002, the Company implemented a reserve
against the purchased inventories. The Company records reductions in revenue when products are returned. Returns
and allowances are monitored based on a historical percentage of sales. All
returns must be approved by the Company prior to the product being returned,
and in some instances a restocking fee is charged to the customer. The Company
also monitors reasons for return, such as quality, shipping errors or ordering
errors. Commissions and Rebates The Company reserves commissions and rebates paid to certain customers based on
specific contractual agreements. These reserves are calculated based upon
sales by customer, and adjusted quarterly to reflect increases and decreases in
each customers sales and payments of commissions and rebates. Contingent liabilities. The Company is subject to lawsuits, investigations and other claims related to
wage and hour/labor, securities, environmental, product and other matters, and
is required to assess the likelihood of any adverse judgments or outcomes to
these matters as well as potential ranges of probable losses. A determination
of the amount of reserves required, if any, for these contingencies is made
when losses are determined to be probable and after considerable analysis of
each 16




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individual issue. These reserves may change in the future due to changes in the
Companys assumptions, the effectiveness of strategies, or other factors beyond
the Companys control. RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2004, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 2003 Net Sales- Net Sales decreased from $117.2 million in Fiscal 2003 to $104
million in Fiscal 2004, a decrease of $13.2 million, or 11.3%. The decrease
resulted from lower sales of branded products. Gross Profit Gross Profit decreased from $13.8 million in Fiscal 2003 to
$13.7 in Fiscal 2004, a decrease of $85,000 or 1%. Our gross profit
percentage increased from 11.8% for Fiscal 2003 to 13.2% for Fiscal 2004. The
gross profit percentage increase was primarily the result of decreased costs
associated with the shipping and storing of excess inventory. The decreased
costs was due to the consolidation of our Kearneysville, West Virginia and
Greencastle Pennsylvania plants, and four raw material storage warehouses into
our 414,000 square foot leased facility in Chambersburg, Pennsylvania. Selling, General and Administrative ExpensesSG&A expenses for Fiscal 2004
were $10.9 million or 10.5% of net sales, as compared to $11.3 million, or 9.6%
of net sales for Fiscal 2003. SG&A increased as a percentage of net sales in
Fiscal 2004, due to the rising cost of employee health benefits, bad debt write
off and advertising expense. Interest ExpenseInterest expense decreased from $1.8 million for Fiscal 2003
to $1.1 million for Fiscal 2004, a decrease of $705,000 or 39.4%. This
decrease is attributable to the lowering of TSTs line of credit and the sale
of the California building. Income TaxesIncome tax expense was $400,100 for Fiscal 2003 as compared to
$674,571 for Fiscal 2004. The increase in tax expense resulted primarily from
increased profits and the taxable gain on the sales of the California
buildings. RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2003, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 2002 Net SalesNet sales decreased from $119.5 million in Fiscal 2002 to $117.2
million in Fiscal 2003, a decrease of $2.3 million or 1.9%, due primarily to a
slowed economy. Gross ProfitGross profit decreased from $14.1 million in Fiscal 2002 to
$13.8 million in Fiscal 2003, a decrease of $354,000 or 2.5%. Our gross
profit percentage remained stable at 11.8% in Fiscal 2002 and Fiscal 2003. Selling, General and Administrative ExpensesSG&A expenses for Fiscal 2003
were $11.3 million, 9.6 % of net sales, as compared to $10.9 million, or 9.1%
of net sales for Fiscal 2002. SG&A increased as a percentage of net sales in
Fiscal 2003, due to the rising cost of employee health benefits, bad debt write
off and advertising expense. 17




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Interest ExpenseInterest expense increased from $1.7 million for Fiscal 2002
to $1.8 million for Fiscal 2003, an increase of $43,000 or 2.5%. This increase
is attributable to the United Computer Supplies, Inc. acquisition plants and
equipment financing. Income TaxesIncome tax expense was $1.1 million for Fiscal 2002 as compared
to $400,100 for Fiscal 2003. The decrease in tax expense resulted primarily
from decreased profits and other income for Fiscal 2003. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased from $95,000 at August 31, 2003 to $173,000
at August 31,
2004. Borrowings under TSTs line of credit decreased from $14.4 million at August
31, 2003 to $6.9 million at August 31, 2004, a decrease of $7.5 million, or
52.3%. The decreased borrowing primarily resulted from TSTs overall reduction
in inventory. Working capital increased to $13 million at August 31, 2004, from $12.7 million
at August 31, 2003, an increase of $322,072 or 2.5%. This increase is
primarily attributable to the decrease in the companys borrowings on its line
of credit. Effective May 2004, TST entered into an amended and restated loan agreement
with a commercial financial corporation, which matures in November 2005. The
agreement provides for a $10 million line of credit and an inventory sub-limit
of $10 million. The loan is secured by, among other things, inventory, trade
receivables, and equipment. The personal guarantee of Marshall Sorokwasz, our
Chairman of the Board and President, and Trustee of a trust which is a
principal shareholder of our Company, was released. Available borrowings under
this line of credit, which accrued interest at prime plus the applicable prime
rate margin (4.25 % and 0%, respectively, at August 31, 2004), are based upon
specified percentages of eligible accounts receivable and inventories. As of
August 31, 2004, there was a $3.2 million borrowing capacity remaining under
the $10 million revolving line of credit. Upon completion of the 34,500 foot expansion of our Itasca, Illinois building,
on September 22, 2004, we consolidated the existing mortgage and the
construction loan executing a five-year, $4.5 million loan with the current
mortgagee of the building. We do not believe that the funds available under the loans encumbering our
Texas, West Virginia, Pennsylvania and Illinois plants, the revolving credit
facility, cash and cash equivalents, trade credit and internally generated
funds will be sufficient to satisfy our requirements for working capital and
capital expenditures for at least the next twelve months. However, we believe
we will be able to obtain an increase in our line with favorable terms. Such
belief is based on certain assumptions, including the continuation of the state
of current operations, and there can be no assurance that such assumptions are
correct. The expansion of our operations due to the start up costs of Alexa
Springs, Inc. will require us to obtain additional capital. We anticipate that
the 18




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funds required will be generated through an increase in our revolving line of
credit. Our recent reduction in our line from $25 million to $10 million
became operationally restrictive due to recent events such as the loss of
certain customers combined with the cash requirements to start operations at a
new business. At August 31, 2004, the Company had the following contractual obligations and
other commercial commitments*: Total
    
    Less than 1 year
    
    1-3 years
    
    4-5 years
    
    After 5 yearsLong-Term Debt**
    
    $
    9,807,371
    
    
    $
    1,415,454
    
    
    $
    1,691,400
    
    
    $
    1,422,553
    
    
    $
    5,277,964Operating Leases
    
    
    11,997,731
    
    
    
    1,191,222
    
    
    
    2,324,504
    
    
    
    2,175,324
    
    
    
    6,306,681Deferred Compensation
    
    
    187,000
    
    
    
    90,383
    
    
    
    74,800
    
    
    
    21,817
    
    
    
    0Total Obligations &
Commitments
    
    $
    21,270,804
    
    
    $
    2,697,059
    
    
    $
    4,090,704
    
    
    $
    3,595,319
    
    
    $
    10,887,722
  *
    
    This table does not include the balance on the revolving line of credit.**
    
    Excludes related interest amounts. As of August 31, 2004, we did not own derivative or other financial instruments
for trading or speculative purposes. We do not use financial instruments and,
therefore, the implementation of Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities did not
have a material impact on our financial position or results of operations. SUBSEQUENT EVENTS In October 2004, Alexa executed a $1.9 million equipment leaseback agreement
with a commercial financial institution. The leased equipment included a
majority of the water bottling equipment located in our Mt. Ida, Arkansas plant
(See Form 8-K, dated October 26, 2004 and filed November 1, 2004) Subsequent to this Form 10-K reporting period, Alexa negotiated a real estate
lease and water supply agreement with Alexa Springs Water Company and our Board
of Directors authorized the President of Alexa to execute the agreements with
an effective date of December 1, 2004. (See Form 8-K, dated December 1, 2004
and filed December 7, 2004) Under the ten year water supply contract executed
by Alexa with Alexa Springs Water Company on December 1, 2004, Alexa must
purchase all of the production of the springs. Alexa also executed a ten year
lease that runs concurrently with the water supply agreement on the land and
buildings, approximately 34,200 square feet, which house the springs. Both of
these agreements have an automatic renewal of second ten year terms if not
terminated in accordance with the agreements. 19




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On November 30, 2004, TST filed a lawsuit in the Dallas County Judicial
District against a
company that operated as our customer and as a vendor alleging breach of
contract seeking to
collect an outstanding accounts receivable, and against an employee of the
company alleging libel
and slander. On December 1, 2004, International Business Machines, Inc (IBM) and
TST/Impreso, Inc. (TST) agreed to terminate their Trademark Licensing
Agreement dated April 30, 1997. This decision was a result of IBM adding other
converters to the program, IBMs refusal to provide account protection, and
IBMs continuing request for guaranteed fees. TSTs IBM products sales were
approximately 11% in the Fiscal year ended August 31, 2004. TST has
approximately eight months to liquidate its IBM branded paper products
inventory IMPACT OF INFLATION Inflation is not expected to have a significant impact on our business. FORWARD-LOOKING STATEMENTS Managements Discussion and Analysis of Financial Condition and the Results of
Operations and other sections of this Form 10-K contain forward-looking
statements about our prospects for the future, including but not limited to
our ability to generate sufficient working capital, our ability to continue to
maintain sales to justify capital expenses, and our ability to generate
additional sales to meet business expansion. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those projected, including availability of raw materials,
availability of thermal facsimile, computer, laser and color ink jet paper, to
the cyclical nature of the industry in which we operate, the potential of
technological changes which would adversely affect the need for our products,
price fluctuations which could adversely impact the large inventory we require,
loss of any significant customer, and termination of contracts essential to
our business. Parties are cautioned not to rely on any such forward-looking
statements or judgments in making investment decisions. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are not exposed to market risks such as foreign currency exchange rates, but
are exposed to risks such as variable interest rates. Market risk is the
potential loss arising from adverse changes in market prices and rates. Our
subsidiaries do not have supply contracts with any of their foreign vendors.
All foreign vendors are paid in United States currency. In addition, TSTs
international sales of finished goods 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, 2004. 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. 20




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The estimated fair value of our total long-term fixed rate and floating rate
debt approximates carrying value. See Note 2 to Consolidated Financial
Statements. Based upon our market risk sensitive debt outstanding at August 31,
2004, there was no material exposure to our financial position or results of
operations. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements
    
    F-1Report of Independent Public Accountants
Blackman Kallick Bartelstein, LLP
    
    F-2Consolidated Balance Sheets as of August 31, 2004 and 2003
    
    F-3, F-4Consolidated Statements of Operations for the Years
Ended August 31, 2004, 2003 and 2002
    
    F-5Consolidated Statements of Stockholders Equity
for the Years Ended August 31, 2004, 2003 and 2002
    
    F-6Consolidated Statements of Cash Flows for the Years
Ended August 31, 2004, 2003 and 2002
    
    F-7Notes to Consolidated Financial Statements
    
    F-8
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 
 ITEM 9A. CONTROLS AND PROCEDURES  (a)
    
    Evaluation of controls and procedures Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective
in timely alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Companys periodic SEC filings. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 21




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We have adopted a code of ethics that applies to all of our principal executive
officers and senior financial officers. This code of ethics is posted on our
Website. The Internet address for our Website is http://www.tstimpreso.com, and
the code of ethics may be found as follows: 1) From our main Web page, first click on Corporate Info. 2) then click on Corporate Compliance. Or for a mailed copy call (972) 462-0100 ext 1117. We intend to satisfy the disclosure requirement required under Item 10 of Form
8-K regarding an amendment to, or waiver from, a provision of this code of
ethics by posting such information on our website, at the address and location
specified above. The remaining information required by this item is incorporated herein by
reference in the Companys definitive proxy statement to be filed with the
Commission not later than 120 days after August 31, 2004. 
 ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference in
the Companys definitive proxy statement to be filed with the Commission not
later than 120 days after August 31, 2004. 
 ITEM. 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS The information required by this item is incorporated herein by reference in
the Companys definitive proxy statement to be filed with the Commission not
later than 120 days after August 31, 2004... 
 ITEM. 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference in
the Companys definitive proxy statement to be filed with the Commission not
later than 120 days after August 31, 2004. 
 ITEM. 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated herein by reference in
the Companys definitive proxy statement to be filed with the Commission not
later than 120 days after August 31, 2004. 
 PART IV 
 ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 22




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(a) 1. Financial Statements: The financial statements of the Company filed in this Annual Report on Form
10-K is 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 is
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. 23




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INDEX TO EXHIBITS Exhibit No.
    
    Description of Exhibits2.1
    
    Plan and Agreement of Merger, dated as of December 1, 1999, among
TST/Impreso, Inc., Impreso, Inc. and TST Merger Corp. (incorporated by
reference to Appendix A of the Companys Registration Statement on Form
S-4, No. 333-92381)2.2(a)
    
    Asset Purchase Agreement by and between TST/Impreso, Inc. and Durango
Georgia Converting LLC dated as of April 5, 2001 (incorporated by
reference to Exhibit 2.1 of the Companys Quarterly Report on Form
10-Q, for the quarter ended May 31, 2001)2.2(b)
    
    Asset Purchase Agreement by and between TST/Impreso, Inc. and Bank of
America, N.A. and consented to by United Computer Supplies, Inc.,
United Computer Supplies-East, Inc. and John R. Zimmerman dated as of
March 19, 2002 (incorporated by reference to Exhibit 2.1 of the
Companys Quarterly Report on Form 10-Q, for the quarter ended May 31,
2002)2.2(c)
    
    Real Estate Purchase and Sale Agreement by and between United Computer
Supplies, Inc. and TST/Impreso, Inc. dated as of March 15, 2002
(incorporated by reference to Exhibit 2.21 of the Companys Quarterly
Report on Form 10-Q, for the quarter ended May 31, 2002)3(a)
    
    Certificate of Incorporation of the Company (incorporated by reference
to Exhibit 3(a) to the Companys Registration Statement on Form S-4,
No. 333-92381)3(b)
    
    By-laws of the Company (incorporated by reference to Exhibit 3(b) to the
Companys Registration Statement on Form S-4, No. 333-92381)4.1
    
    Form of Underwriters Warrant (incorporated by reference to Exhibit 4.1
to the Companys Registration Statement on Form S-1, No. 33-93814)10(a)
    
    1995 Stock Option Plan (incorporated by reference to Exhibit 10.1 to
the Companys Registration Statement on Form S-1, No. 33-93814)10(b)
    
    Employment Agreement dated January 27, 1999, between the Company and
Marshall Sorokwasz (incorporated by reference to Exhibit 10.2 to the
Companys Registration Statement on Form S-1, No. 33-93814)10(c)
    
    IBM Brand Paper Trademark Licensing Agreement, effective as of April 30,
1997 and Amendment No. 1 thereto, between TST/Impreso, Inc. and
International Business Machines Corporation (incorporated by reference to
Exhibit 10(c) of the Companys Quarterly Report on Form 10-Q/A, dated July
15, 1997) [Confidential treatment has been granted for certain portions of
this Exhibit]10(d)
    
    Amendment Number 2 to the IBM Brand Paper Trademark Licensing Agreement,
dated March 5, 1999, between TST/Impreso, Inc. and International Business
Machines Corporation (incorporated by reference to Exhibit 10(d) of the
Companys amended Quarterly Report on Form 10-Q/A, dated June 17, 1999)
[Confidential treatment has been granted for certain portions of this
Exhibit]10(e)
    
    Crayola License Agreement made as of February 6, 2002, with an effective
date of March 1, 2002, by and between Binney & Smith Properties, Inc. and
TST/Impreso, Inc. (incorporated by reference to Exhibit 10(e) of the
Companys amended Quarterly Report on Form 10-Q/A dated May 1, 2002)
[Confidential treatment has been granted for certain portions of this
Exhibit]10(f)
    
    Employment Agreement dated January 27, 2004, between the Company and
Marshall Sorokwasz (incorporated by reference to Exhibit 10(f) to the
Companys Quarterly Report on Form 10-Q, dated February 29, 2004)10 (g)
    
    Equipment Lease Agreement dated October 26, 2004 between Alexa Springs,
Inc. and General Electric Capital Corporation (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K, dated October 26,
2004).10(h)
    
    Real Estate Lease Agreement dated December 1, 2004, between Alexa Springs,
Inc. and Alexa Springs Water Company. (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K, dated December 1, 2004).10(i)
    
    Water Supply Agreement dated December 1, 2004, between Alexa Springs, Inc.
and Alexa Springs Water Company. (incorporated by reference to Exhibit 10.2
to the Companys Current Report on Form 8-K, dated December 1, 2004).21
    
    Subsidiaries of the Registrant31.1
    
    Certificate Pursuant to Section 302 of Sarbanes  Oxley Act of 2002 for CEO.31.2
    
    Certificate Pursuant to Section 302 of Sarbanes  Oxley Act of 2002 for CFO.
 24




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##### Table of Contents



Exhibit No.
    
    Description of Exhibits32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    Value, Inc. Fairness Opinion (incorporated by reference to Exhibit 99.1 to
the Companys Current Report on Form 8-K, dated December 1, 2004)
 25




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Public Accountants
Blackman Kallick Bartelstein, LLP
    
    
    F-2Consolidated Balance Sheets as of August 31, 2004
and 2003
    
    
    F-3, F-4Consolidated Statements of Operations for the Years
Ended August 31, 2004, 2003 and 2002
    
    
    F-5Consolidated Statements of Stockholders Equity
for the Years Ended August 31, 2004, 2003 and 2002
    
    
    F-6Consolidated Statements of Cash Flows for the Years
Ended August 31, 2004, 2003 and 2002
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders of Impreso, Inc.: We have audited the accompanying consolidated balance sheets of Impreso, Inc.
(a Delaware corporation) and subsidiaries as of August 31, 2004 and 2003, the
related consolidated statements of operations, stockholders equity and cash
flows for each of the three years in the period ended August 31, 2004. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Impreso, Inc. and
subsidiaries as of August 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 2004 in conformity with accounting principles generally accepted in
the United States of America. Blackman Kallick Bartelstein, LLP
Chicago, Illinois
October 22, 2004, except for Notes 8 and 10, as to which the date is December
1, 2004, and Note 15, as to which the date is October 26, 2004. F-2




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS ASSETS August 31
    
    August 31,2004
    
    2003Current assets:Cash and cash equivalents
    
    $
    173,313
    
    
    $
    95,129Trade accounts receivable, net of allowance for doubtful accounts
$1,130,315 as of August 31, 2004, and $630,916 as of August 31, 2003.
    
    
    12,666,433
    
    
    
    12,144,735Inventories
    
    
    22,643,558
    
    
    
    28,462,091Prepaid expenses and other
    
    
    330,039
    
    
    
    141,729Deferred income tax assets
    
    
    736,810
    
    
    
    574,924Total current assets
    
    
    36,550,153
    
    
    
    41,418,608Property, plant and equipment, at cost
    
    
    29,417,303
    
    
    
    28,030,124Less-Accumulated depreciation
    
    
    (14,295,714
    )
    
    
    (13,196,099
    )Net property, plant and equipment
    
    
    15,121,589
    
    
    
    14,834,025Noncurrent assetsOther assets
    
    
    81,778
    
    
    
    83,667Deferred income tax assets
    
    
    318,718
    
    
    
    Total noncurrent assets
    
    
    400,496
    
    
    
    83,667Total assets
    
    $
    52,072,238
    
    
    $
    56,336,300
 The accompanying notes are an integral part of the consolidated financial statements. F-3




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS EQUITY August 31
    
    August 31,2004
    
    2003Current liabilities:Accounts payable
    
    $
    12,711,758
    
    
    $
    11,102,673Accrued liabilities
    
    
    987,921
    
    
    
    851,029Accrued commissions
    
    
    1,863,698
    
    
    
    1,041,657Current maturities of long-term debt
    
    
    1,407,070
    
    
    
    1,343,231Line of credit
    
    
    6,851,479
    
    
    
    14,355,445Current maturities of prepetition debt
    
    
    8,384
    
    
    
    8,084Total current liabilities
    
    
    23,830,310
    
    
    
    28,702,119Deferred income tax liability
    
    
    998,730
    
    
    
    1,021,357Deferred gain
    
    
    796,796
    
    
    
    Long-term debt, net of current maturities
    
    
    8,171,228
    
    
    
    9,342,784Long-term portion of prepetition debt, net of current maturities
    
    
    220,689
    
    
    
    229,150Total liabilities
    
    
    34,017,753
    
    
    
    39,295,410Stockholders 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 5,278,780 outstanding
    
    
    52,928
    
    
    
    52,928Treasury stock (14,000 shares, at cost)
    
    
    (38,892
    )
    
    
    (38,892
    )Additional paid-in capital
    
    
    6,353,656
    
    
    
    6,353,656Retained earnings
    
    
    11,686,793
    
    
    
    10,673,198Total stockholders equity
    
    
    18,054,485
    
    
    
    17,040,890Total liabilities and stockholders equity
    
    $
    52,072,238
    
    
    $
    56,336,300
 The accompanying notes are an integral part of the consolidated financial statements. F-4




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended August 31,2004
    
    2003
    
    2002Net sales
    
    $
    103,989,229
    
    
    $
    117,222,957
    
    
    $
    119,525,362Cost of sales
    
    
    90,283,782
    
    
    
    103,432,569
    
    
    
    105,380,894Gross Profit
    
    
    13,705,447
    
    
    
    13,790,388
    
    
    
    14,144,468Selling, General and administrative expense
    
    
    10,879,310
    
    
    
    11,297,995
    
    
    
    10,858,656Operating Income
    
    
    2,826,137
    
    
    
    2,492,393
    
    
    
    3,285,812Other expenses (income):Interest expense
    
    
    1,083,289
    
    
    
    1,787,950
    
    
    
    1,744,774Litigation Settlement
    
    
    
    
    
    
    
    
    
    
    (1,005,452
    )Other expense (income), net
    
    
    54,682
    
    
    
    (313,489
    )
    
    
    (183,348
    )Total other expense
    
    
    1,137,971
    
    
    $
    1,474,461
    
    
    
    555,974Income before income tax expense
    
    
    1,688,166
    
    
    
    1,017,932
    
    
    
    2,729,838Income tax expense:Current
    
    
    1,177,802
    
    
    
    388,319
    
    
    
    1,428,875Deferred
    
    
    (503,231
    )
    
    
    11,782
    
    
    
    (375,479
    )Total income tax expense
    
    
    674,571
    
    
    
    400,101
    
    
    
    1,053,396Net income
    
    $
    1,013,595
    
    
    $
    617,831
    
    
    $
    1,676,442Net income per share (basic and diluted)
    
    $
    0.19
    
    
    $
    0.12
    
    
    $
    0.32Weighted average shares outstanding
    
    
    5,278,780
    
    
    
    5,278,780
    
    
    
    5,278,780
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY Common Stock
    
    Additional$.01 Par Value
    
    Paid-In
    
    
    
    
    
    Retained
    
    TreasuryShares
    
    Amount
    
    Capital
    
    Warrants
    
    Earnings
    
    Stock
    
    TotalBalance, August 31, 2001
    
    
    5,292,780
    
    
    $
    52,928
    
    
    $
    6319682
    
    
    
    
    
    
    $
    8378925
    
    
    $
    (38,892
    )
    
    $
    14,712,643Other
    
    
    
    
    
    
    
    
    
    
    27,527
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,527Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,676,442
    
    
    
    
    
    
    
    1,676,442Balance, August 31, 2002
    
    
    5,292,780
    
    
    
    52,928
    
    
    
    6,347,209
    
    
    
    
    
    
    
    10,055,367
    
    
    
    (38,892
    )
    
    
    16,416,612Expired Warrants
    
    
    
    
    
    
    
    
    
    
    6,447
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,447Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    617,831
    
    
    
    
    
    
    
    617,831Balance, August 31, 2003
    
    
    5,292,780
    
    
    
    52,928
    
    
    
    6,353,656
    
    
    
    
    
    
    
    10,673,198
    
    
    
    (38,892
    )
    
    
    17,040,890Expired Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,013,595
    
    
    
    
    
    
    
    1,013,595Balance, August 31, 2004
    
    
    5,292,780
    
    
    $
    52,928
    
    
    $
    6,353,656
    
    
    
    
    
    
    $
    11,686,793
    
    
    
    (38,892
    )
    
    $
    18,054,485
 The accompanying notes are an integral part of these consolidated financial statements. F-6




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended August 31,2004
    
    2003
    
    2002Cash Flows From Operating Activities:Net income
    
    $
    1,013,595
    
    
    $
    617,831
    
    
    $
    1,676,442Adjustments to reconcile net income to net
cash provided by in operating activities-Depreciation and amortization
    
    
    1,419,715
    
    
    
    1,438,791
    
    
    
    1,262,003Provision for losses of receivables
    
    
    499,399
    
    
    
    115,906
    
    
    
    258,100(Decrease) increase in Provision for Losses on Inventory
    
    
    (79,391
    )
    
    
    
    
    
    
    390,651Gain on sale of property, plant and equipment
    
    
    796,796
    
    
    
    
    
    
    
    (Decrease) increase in deferred income taxes
    
    
    (503,231
    )
    
    
    11,782
    
    
    
    (375,479
    )Increase (decrease) in trade accounts receivable, net
    
    
    (1,021,097
    )
    
    
    3,602,908
    
    
    
    (4,373,561
    )Decrease (increase) in inventory
    
    
    5,897,924
    
    
    
    5,648,924
    
    
    
    6,933,246Increase (decrease) in prepaid expenses and other
    
    
    (186,421
    )
    
    
    116,046
    
    
    
    112,157Increase (decrease) in accounts payable
    
    
    1,609,085
    
    
    
    (5,199,128
    )
    
    
    (2,270,399
    )Increase (decrease) in accrued liabilities
    
    
    958,933
    
    
    
    (1,803,705
    )
    
    
    1,828,124Net cash provided by operating activities
    
    
    10,405,307
    
    
    
    4,549,355
    
    
    
    5,441,284Cash Flows From Investing Activities:Additions to property, plant and equipment
    
    
    (3,760,684
    )
    
    
    (335,765
    )
    
    
    (1,540,505
    )Proceeds from sale of property, plant and equipment
    
    
    2,053,405
    
    
    
    2,048
    
    
    
    Acquisition of United assets
    
    
    
    
    
    
    
    
    
    
    (3,377,496
    )Net cash used in investing activities
    
    
    (1,707,279
    )
    
    
    (333,717
    )
    
    
    (4,918,001
    )Cash Flows From Financing Activities:Net payments on line of credit
    
    
    (7,503,966
    )
    
    
    (3,506,379
    )
    
    
    (446,514
    )Principal payments on prepetition debt
    
    
    (8,161
    )
    
    
    (7,866
    )
    
    
    (7,559
    )Principal payments on post-petition debt
    
    
    (1,107,717
    )
    
    
    (809,073
    )
    
    
    (1,577,753
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    1,500,000Net cash used in financing activities
    
    
    (8,619,844
    )
    
    
    (4,323,318
    )
    
    
    (531,826
    )Net increase (decrease) in cash and cash equivalents
    
    
    78,184
    
    
    
    (107,680
    )
    
    
    (8,543
    )Cash and cash equivalents, beginning of year
    
    
    95,129
    
    
    
    202,809
    
    
    
    211,352Cash and cash equivalents, end of year
    
    $
    173,313
    
    
    $
    95,129
    
    
    $
    202,809
 The accompanying notes are an integral part of the consolidated financial statements. F-7




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND NATURE OF BUSINESS: Impreso, Inc., a Delaware corporation (referred to collectively with its
subsidiaries as the Company), is the parent holding company of TST/Impreso,
Inc. (TST), a manufacturer and distributor to dealers and other resellers of
paper and film products for commercial and home use in domestic and
international markets, Hotsheet.com, Inc., the owner and operator of the
Hotsheet.com web portal, and Alexa Springs, Inc. a natural spring water
bottler. Currently, TST has one wholly owned subsidiary, TST/Impreso of
California, Inc., which was formed to support the activities of the paper
converting segment of the Companys business. For the years ended August 31,
2004, 2003 and 2002, net sales of Hotsheet.com, Inc. amounted to $138,239,
$158,755 and $122,629, respectively. Alexa Springs, Inc. (Alexa) did not
generate sales in Fiscal 2004. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The consolidated financial statements include Impreso, Inc. and the accounts of
its wholly owned subsidiaries. All significant intercompany accounts and
transactions with its consolidated subsidiaries have been eliminated. Use of Estimates and Concentration of Credit The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. TST sells its paper and film products to dealers and resellers for commercial
and home use. TST reviews all existing customers financial condition
periodically and monitors average days outstanding in accounts receivable.
Receivables are generally due 30 days from the date of sale. One TST customer accounted for approximately 30%, 22%, and 20% of gross sales,
and 34%, 26% and 16% of accounts receivable for the years ended August 31,
2004, 2003 and 2002, respectively. Another customer represented approximately
5%, 8% and 11% of gross sales and 3%, 15% and 9% of accounts receivable as of
and for the years ended August 31, 2004, 2003 and 2002, respectively. Beginning
in August 2004, a major customer substantially decreased purchasing certain
products The reduction of future sales to this customer is expected to
approximate $20 million annually. Management believes that this reduction in
sales may materially adversely affect our financial position, results of
operations and cash flows in Fiscal 2005. F-8




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##### Table of Contents



Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents... Accounts Receivable (doubtful accounts) Reserves The Company provides for losses on accounts receivable based upon their current
status, historical experience and managements evaluation of existing economic
conditions. Significant changes in customer profitability or general economic
conditions may have a significant effect on the Companys allowance for
doubtful accounts. Inventories Inventories are stated at the lower of cost, on a first-in, first-out basis, or
market, and include material, labor and factory overhead. Reserves for slow moving, obsolete products, or bad (damaged) products are
based on historical experience, acquisition activities, and analysis of
inventory on hand. The Company evaluates, and, if necessary, adjusts reserves
quarterly. Property, Plant and Equipment Property, plant and equipment are stated at acquisition or construction cost.
Expenditures for maintenance, repairs and improvements that do not extend the
useful lives of assets are charged to appropriate expense accounts in the year
incurred. Upon disposition of an asset, cost and accumulated depreciation are
removed from the accounts, and any gain or loss is included in the
results of operations. Depreciation is computed on the straight-line basis
using the estimated useful lives of the respective assets, five years for
furniture and fixtures, seven years for equipment and thirty years for
buildings. Revenue Recognition TSTs sales are recorded when products are shipped to customers. TST is
reasonably assured that its sales are collectible upon shipment due to its
credit policies and collection methods. For those accounts TST is not
reasonably assured of collection, the Company reserves against doubtful
accounts based upon historical experience and managements evaluation of
existing economic conditions. Hotsheet.com, Inc. generates its revenue by click through fee advertising
revenues and commissions earned. Click through fees are generated when traffic
is sent from the Hotsheet.com website, via a link, to a vendors website.
Commissions are generated when the linked traffic makes purchases. The revenue
is recognized upon receipt. As of the year ended August 31, 2004, Alexa Springs, Inc. had not generated
sales. F-9




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) Commissions and Rebates The Company reserves commissions and rebates paid to certain customers based on
specific contractual agreements. These reserves are calculated based upon
sales by customer, and adjusted monthly to reflect increases and decreases in
each customers sales and payments of commissions and rebates. The 2003 and 2002 consolidated financial statements reflect the
reclassification of customer rebates to sales from cost of sales in the amount
of $3,237,913 and $3,540,465, respectively. The 2003 and 2002 consolidated
financial statements reflect the reclassification of sales commissions and
advertising discounts to selling, general and administrative expenses from cost
of sales in the amount of $1,085,068 and $1,526,306, respectively. Advertising Advertising costs are expensed as incurred. Advertising costs were
approximately $2.2 million, $1.8 million and $2.3 million for the years ended
August 31, 2004, 2003 and 2002, respectively, and are included in selling,
general and administrative expenses in the accompanying consolidated financial
statements. Other Expense (Income), Net Other expense, net, consists primarily of gain on sale of assets, billboard
lease income at the Itasca, Illinois facility, minority interest expense and
expenses associated with the sale of the California buildings. Litigation Settlement In a United States class action lawsuit involving international and domestic
manufacturers attempt to fix jumbo roll thermal facsimile paper prices in the
United States, Impreso, Inc. was awarded over $1 million in November 2001. The
plaintiff class settled with the defendants for over $16 million. Impreso,
Inc. did not participate in the ongoing litigation, but was awarded over $1
million as its share of the settlement by the courts. The award was reported
as other income in the first quarter of the Fiscal year 2002. Cash Flow Information Cash paid for interest during fiscal years 2004, 2003 and 2002 was $1.1
million, $1.8 million and $1.7 million, respectively. Cash paid for income taxes during fiscal years 2004, 2003 and 2002 was
$1,010,639, $801,377 and $1,224,802 respectively. Stock Based Compensation In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, F-10




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) which requires entities to measure compensation costs related to awards of
stock-based compensation using either the fair value method or the intrinsic
value method. Under the fair value method, compensation expense is measured as
of the grant date based on the fair value of the award. Under the intrinsic
value method, compensation is equal to the excess, if any, of the quoted market
price of the stock at the grant date over the amount the employee must pay to
acquire the stock. Entities electing to measure compensation costs using the
intrinsic value method must make pro forma disclosures of net income and
earnings per share as if the fair value method had been applied. The Company accounts for the Incentive Stock Option Plan under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations. No stock-based compensation costs
are reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation. August 31
    
    2004
    
    2003
    
    2002Net EarningsAs reported
    
    $
    1,013,595
    
    
    $
    617,831
    
    
    $
    1,676,442Pro forma
    
    
    1,009,095
    
    
    
    575,831
    
    
    
    1,592,442Stock-based employee
Compensation Expense, Net of TaxAs reported
    
    
    
    
    
    
    
    
    
    
    Pro forma
    
    
    4,500
    
    
    
    42,000
    
    
    
    84,000Net Earnings per Common and
Common equivalent share:Basic  As reported
    
    
    0.19
    
    
    
    0.12
    
    
    
    0.32Diluted   As
reported
    
    
    0.19
    
    
    
    0.12
    
    
    
    0.32Basic  Pro forma
    
    
    0.19
    
    
    
    0.11
    
    
    
    0.29Diluted   Pro forma
    
    $
    0.19
    
    
    $
    0.11
    
    
    $
    0.29
 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 2004, 2003 and 2002, respectively: expected volatility of 70.5%, 80%
and 86.2%; risk-free interest rate of 3.10%, 5.23% and 4.32% ; expected lives
of five years; and no expected dividends. Net Income Per Share Basic net income per share is based on the weighted-average number of common
shares outstanding. Common share equivalents have not been included in the
computation of diluted net income per share to the extent that they are
anti-dilutive. Excluded from the computation of diluted F-11




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) net income per share are options to purchase 324,700, 377,200 and 379,400
shares of common stock as of August 31, 2004, 2003 and 2002, respectively.
These options were excluded because the option exercise price was greater than
the average market price of the common stock. Dilutive common share
equivalents did not have a material effect on the income per share calculation. Disclosures about Fair Value of Financial Instruments In accordance with SFAS No.107, Disclosures About Fair Value of Financial
Instruments, the following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value:  Cash and cash equivalents, accounts receivable, investments, accounts payable
and long-term debt  the carrying amount approximates fair value. New Financial Accounting Pronouncements In October 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121 Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS No. 144 requires long-lived assets be measured at the lower
of selling amount or fair value less cost to sell, whether reported in
continuing operations or discontinued operations. SFAS No. 144 also broadens
the reporting of discontinued operations to include all components of an entity
with operations that can be distinguished from the rest of the entity and that
will be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of SFAS No. 144 became effective for
consolidated financial statements issued for financial years beginning after
December 15, 2001. The adoption of SFAS No. 144 did not have a material impact
on the Companys financial statements. In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment to SFAS No. 123".This
statement provides alternative methods of transition for companies that elect
to voluntarily change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company currently does not intend to change to the fair value
based method of accounting for stock-based compensation, but will adhere to the
disclosure requirements of the Statement. The Company adopted the disclosure
requirements for the third quarter of Fiscal 2003. In January 2003, the FASB issued Interpretation 46 (FIN 46), Consolidation
of Variable Interest Entities, an Interpretation of ARB 51, which expands upon
and strengthens existing accounting guidance concerning when a company should
include in its financial statements the assets, liabilities and activities of
another entity. A variable interest entity (VIE) does not share economic
risk and reward through typical equity ownership arrangements; instead,
contractual or other relationships distribute economic risks and rewards among
equity holders and other parties. Once an entity is determined to be a VIE,
the party with the controlling financial interest, the F-12




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) primary beneficiary, is required to consolidate it. FIN 46 also requires
disclosures about VIEs that the Company is not required to consolidate but in
which it has a significant variable interest. The adoption of this statement
did not have a material impact on the Companys consolidated financial
statement. In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The adoption of this
statement did not have any impact on the Companys consolidated financial
position or results of operations. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures in
its balance sheet certain financial instruments with characteristics of both
liabilities and equity. In accordance with the standard, a financial
instrument that embodies an obligation for the issuer is required to be
classified as a liability (or an asset in some circumstances). SFAS 150 is
effective for financial statements entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this statement did not have any
impact on the Companys consolidated financial position and results of
operations. Reclassifications Certain prior year amounts have been reclassified to conform to the current
year presentation. 3. INVENTORIES: Inventories consisted of the following: August 31,2004
    
    2003Finished goods
    
    $
    11,920,405
    
    
    $
    15,409,606Raw materials
    
    
    9,866,736
    
    
    
    12,345,769Supplies
    
    
    1,047,748
    
    
    
    1,008,103Work-in-process
    
    
    117,396
    
    
    
    86,731Allowance for obsolete inventory
    
    
    (308,727
    )
    
    
    (388,118
    )Total
    
    $
    22,643,558
    
    
    $
    28,462,091
 4. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are comprised of the following: F-13




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) August 31
    
    August 312004
    
    2003Buildings and equipment
    
    $
    27,100,375
    
    
    $
    25,730,786Furniture, fixtures and other
    
    
    2,316,928
    
    
    
    2,299,33829,417,303
    
    
    
    28,030,124Less-Accumulated depreciation
    
    
    (14,295,714
    )
    
    
    (13,196,099
    )Net property, plant and equipment
    
    $
    15,121,589
    
    
    $
    14,834,025
 5. LONG-TERM DEBT AND LINE OF CREDIT: The following is a summary of long-term debt and line of credit: August 31,
    
    August 31,2004
    
    2003Line of Credit with a commercial financial corporation under
revolving credit line, maturing November 2005, secured by
inventories, trade accounts receivable, equipment, and goodwill
associated with TSTs trademark IMPRESO (no value on
financial statements), interest payable monthly at prime plus
the applicable prime rate margin (4.25 % and 0%, respectively,
as of August 31, 2004), and interest payable monthly since
July 3, 2003, on $12,000,000 at LIBOR plus 2.75% (3.86 % as of
August 31, 2003), balance at prime plus .25% (4.25 % as of
August 31, 2003).
    
    $
    6,851,479
    
    
    $
    14,355,445Note payable to a commercial financial corporation, secured by
real property, payable in monthly installments of $15,151
(including interest) at 7.75%, or 4.5% above the 11th District
cost of funds rate, whichever is greater; note paid in full as
of August 31, 2004.
    
    
    
    
    
    
    1,638,448Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$4,457 (including interest at 8.50%), maturing November 2008.
    
    
    222,039
    
    
    
    257,641Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$10,843 (including interest at 8.50%), maturing July 2010.
Revolving lenders blanket lien subordinated to notes
collateral.
    
    
    599,536
    
    
    
    682,876Note payable to a commercial financial corporation, secured by
real property, payable in monthly installments of $2,834
(including interest at 5.5%), maturing October 2010.
    
    
    175,978
    
    
    
    199,531Notes payable to various commercial financial corporations,
secured by equipment, interest rates ranging from 5.25 % to
13.8 %, maturing at various dates from September 2003 through
July 2008.
    
    
    140,069
    
    
    
    308,323Notes payable to a commercial financial corporation, secured by
real property and a personal guarantee by the trustee of a
trust which is a principal stockholder of the Company, payable
in monthly installments of $21,407 (including interest at 8%),
maturing March 2011.
    
    
    1,944,381
    
    
    
    2,041,453Acquisition note payable, unsecured, payable in quarterly
installments of $15,000 (including interest at 8%), maturing
April 2006. (See Second Paragraph, Footnote 8)
    
    
    225,000
    
    
    
    225,000
 F-14




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) August 31,
    
    August 31,2004
    
    2003Acquisition note payable, secured by equipment, payable in
monthly installments of $16,024, no interest, matured May 2003.
(See Second Paragraph, Footnote 8)
    
    
    352,145
    
    
    
    352,145Note payable to a commercial financial corporation, secured by
real property and a personal guarantee by the trustee of a
trust which is a principal stockholder of the Company, payable
in monthly installments of $22,827 (including a fixed schedule
for interest, 6% at August 31, 2004), maturing April 2007. On
September 22, 2004, this note was combined with the
construction note, in which the personal guarantee was
relinquished by the lender.
    
    
    3,085,043
    
    
    
    3,135,614Note payable to a commercial financial corporation, secured by
equipment, payable in monthly installments of $17,857 including
interest at a variable rate equal to 30 day LIBOR plus 350
basis points, (4.5% at August 31, 2004), maturing February
2009.
    
    
    982,143
    
    
    
    1,196,429Acquisition notes payable, unsecured, payable in monthly
installments of $16,666, maturing February 2007.
    
    
    476,905
    
    
    
    648,556Construction note payable to a commercial financial
corporation, secured by real property, payable in monthly
installments of interest only, at 6 %, consolidated into new
loan executed September 22, 2004, combined with balance of
existing mortgage on the real property. Interest on the new
combined loan will be prime plus 1.125%, capped at 7.5%,
maturing 5 years from date of execution.
    
    
    1,375,059
    
    
    
    Prepetition-Note payable to a commercial financial corporation, secured by
real property and equipment and a personal guarantee by the
trustee of a trust which is a principal stockholder of the
Company, payable in monthly installments of $1,461 (including
interest at 4%), maturing April 2008.
    
    
    229,073
    
    
    
    237,234Total
    
    
    16,658,850
    
    
    
    25,278,694Less Current Maturities
    
    
    (8,266,933
    )
    
    
    (15,706,760
    )Long-Term Debt
    
    $
    8,391,917
    
    
    $
    9,571,934
 Prepetition amount listed above represents the renegotiated amounts and terms
under the 1993 plan of reorganization. In April 2004, TST amended its revolving line of credit to decrease the line
from $25 million to $10 million. The amended revolving credit line is limited
to the lesser of $10 million or a percentage of eligible trade accounts
receivable and inventories, as defined. The remaining availability under the
revolving credit line was $3.2 million as of August 31, 2004. The line of credit, as amended, has a restrictive covenant requiring the
maintenance of a minimum tangible net worth, as defined in the agreement. One
of the notes payable contains restrictive covenants on current and debt to
worth ratio, and the payment of cash dividends. As of August 31, 2004, the
Company was in compliance with all covenants. Future maturities of long-term
debt, F-15




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) which includes borrowings under the line of credit, at August 31, 2004, are as
follows: 2005
    
    $
    8,266,9332006
    
    
    903,5542007
    
    
    787,8462008
    
    
    880,0332009
    
    
    726,673Thereafter
    
    
    5,093,811$
    16,658,850
 The aggregate fair value of the above notes, based on an average borrowing rate
of the company as of August 31, 2004 was $17,249,965 as compared with its
carrying value of $16,658,850. 6. ACQUISITION: On March 19, 2002, the Company, through its main operating subsidiary
TST/Impreso, Inc., acquired substantially all of the operating assets of the
United Computer Supplies, Inc. and United
Computer Supplies-East, Inc., a forms manufacturer, for an aggregate
acquisition cost of $4.5 million. The acquisition cost consists of $3.6 million
paid in cash and $900,000 notes payable to sellers. The acquisition was
accounted for under the purchase method. There was no excess consideration
paid over the estimated fair value of tangible net assets acquired. The
Companys consolidated financial statements have incorporated Uniteds
operating results from the effective date of the acquisition (March 19, 2002).
The following unaudited pro forma financial information combines the results of
operations of the Company and United as if the acquisition had taken place as
of September 1, 2000. These results are not intended to be a projection of
future results. Twelve Months EndedAugust 31, 2002Net Sales
    
    $
    141,151,266Net Income
    
    
    457,332Net Income per share  Basic and Diluted
    
    $
    .09
 In addition, on April 19, 2002, the manufacturing facility was purchased for
$4.1 million. 7. TSTS EQUIPMENT LEASE AGREEMENTS: TST is obligated under operating leases, which expire at various dates through
2017. Rental expenses under these operating leases were $955,966, $461,946 and
$263,313 for the years ended August 31, 2004, 2003 and 2002, respectively.
These expenses do not include the in-out public warehouse charges, which are
assessed on each box or pallet as it is brought into and out of the warehouse.
Future annual minimum lease payments as of August 31, 2004, are as follows: 2005
    
    $
    1,191,2222006
    
    
    1,164,8582007
    
    
    1,159,646
 F-16




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2008
    
    
    1,143,9802009
    
    
    1,031,344Thereafter
    
    
    6,306,681$
    11,997,731
 In April 2004, the company sold its facility in Fontana, California to an
unrelated party as part of a sales-leaseback transaction. The transaction has
been accounted for as a sale, although the gain associated with the sale has
been deferred in accordance with sales-leaseback accounting and is being
amortized over 60 months, which represents the life of the related lease
agreement. 8. COMMITMENTS AND CONTINGENCIES: Legal- On September 18, 2002, TST filed a lawsuit against a vendor in the United
States District Court for the Northern District of Texas  Dallas Division.
TSTs general claim is that the vendor breached a Distributor Agreement entered
into with TST in several material respects, including the vendors late
delivery of paper products, the vendors delivery of defective product, and the
vendors failure to properly credit TSTs accounts based upon these and other
alleged breaches. The vendor responded to TSTs demand for arbitration by
generally denying TSTs claims and asserting a counterclaim seeking to recover
disputed accounts receivable and damages related to TSTs alleged interference
with the vendors relationship with its lender. The Trial is set for March
2005. TST is a defendant in a suit filed in Fiscal 2003 for the collection of sums
due under two promissory notes. The liability of $577,145 is included on the
Companys balance sheet as long term debt. TST recently prevailed in its motion
to stay the adversary proceeding and to compel arbitration in Dallas, Texas
under the terms of the parties purchase agreement. TST asserts that liability
does not exist because of fraud and contractual breaches in connection with the
agreements. On January 14, 2004, the Company filed suit against two vendors of products
claiming breach of UCC warranties for selling to TST/Impreso, Inc. patent
infringing goods. On November 17, 2004, the Defendants agreed to pay TST an
approximate $47,000 settlement. On November 5, 2003, the Company discovered the Companys payroll
administrator was
fraudulently diverting Company funds into her personal bank accounts. The
investigation revealed
a loss of approximately $627,000 over a period starting in September 2000
until October 2003. In
November 2004, the Company and the current insurer executed a settlement for
$253,000, without
waiving each partys rights to proceed to suit or defend on the balance of the
Companys losses.
Management believes recent legal developments could be persuasive in litigating
different
interpretations of defined terms within the policy, and therefore recovering up
to $500,000 of the
Companys claim as filed with the Insurer. On November 19, 2004, the employee
was sentenced to
prison, ordered to immediately remit to the Company $70,000 of known funds held
in her name,
and to pay restitution in full. F-17




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In December 2003, TST/Impreso, Inc. entered into a settlement agreement with
a customer due to a
dispute concerning catalog fees. The settlement requires TST to issue a credit
memo to the
customer for the purchase of products in the amounts of $50,000, $25,000 and
$25,000 on
December 31, 2004, June 30, 2005, and December 31, 2005, respectively. These
amounts are
included in the accrued liabilities. In April 2004, TST filed
a lawsuit in the 68th judicial district of Dallas
County against two former
outside sales representatives and a competitor, alleging breach of fiduciary
duty, tortious
interference with existing and prospective business relations, and civil
conspiracy. The lawsuit
seeks to enforce the duties of loyalty owed to TST by its sales agents, and
also protect TST from
any unfair business practices of TSTs competitors. The competitor filed a
counter claim alleging
business disparagement and tortious interference with existing and prospective
business relations.
The parties to the litigation are actively conducting discovery. On July 9, 2004, TST received a Preference Claim demand from the Trustee of
the estate a former
customer in the amount of $1.2 million. No suit has been filed to date. This
demand is a gross preference demand and the Company believes subsequent to a
full preference analysis and the Companys utilization of various defenses, any
liability should be lowered to a materially reduced amount. The Companys Corporate Income Tax Returns for the fiscal years ending August
31, 2001, 2002, and 2003, are currently under examination by the Internal
Revenue Service (IRS). The
IRS has proposed adjustments to the fiscal years under examination, and the
matter has been sent to the Appeals Division of the IRS. The Company does not
believe that the proposed adjustments will be upheld by the Appeals Division. TSTs Significant Contracts- In April 1997, TST entered into a non-exclusive Trademark Licensing Agreement
with International Business Machines Corporation (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. In September 2003, the agreement was extended until April 2007. TST
is required to pay participation fees based upon a percentage of net profits of
these products (as defined by the agreement) and maintain certain sales volumes
and quality standards as required by the agreement. The agreement may be
canceled by either party upon 120 days written notice. On December 1, 2004 TST
and IBM terminated the Trademark Licensing Agreement. In February 2002, TST entered into a trademark licensing agreement with Binney
& Smith Properties, Inc., the owner of the Crayola trademark. The agreement
provides for TST to manufacture and distribute a select line of Crayola®
imaging products such as Laser and Ink Jet paper, card stock, post cards,
magnets, and t-shirt transfers within the United States, Canada and Mexico
through specified channels of distribution. The original agreement expired on
February 28, 2004, and was amended to extend through December 31, 2004. F-18




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. INCOME TAXES: The Company utilizes SFAS No. 109, Accounting for Income Taxes, which
requires among other things, an asset and liability approach for financial
accounting and reporting of income taxes.
Significant components of deferred income taxes at August 31, 2004 and 2003,
were as follows: 2004
    
    2003Deferred income tax assets-Current:Allowance for doubtful accounts receivable
    
    $
    452,126
    
    
    $
    252,366Allowance for obsolete inventory
    
    
    123,491
    
    
    
    155,247Accrued vacation
    
    
    140,000
    
    
    
    158,200Other
    
    
    21,193
    
    
    
    9,111Deferred income tax assets-noncurrent:Deferred gain on sale of building
    
    
    318,718
    
    
    
    Deferred income tax liability-long term:Tax over book depreciation and amortization
    
    
    (998,730
    )
    
    
    (1,021,357
    )Net deferred income tax assets (liabilities)
    
    $
    56,798
    
    
    
    ($446,433
    )
 The Companys effective tax rate was different than the statutory federal
income tax rate for the years ended August 31, 2004, 2003 and 2002, as follows: 2004
    
    2003
    
    2002Federal income taxes at statutory rate (34%)
    
    $
    573,976
    
    
    $
    346,097
    
    
    $
    941,590State taxes, net of federal income tax benefit
    
    
    102,295
    
    
    
    72,600
    
    
    
    73,830Tax effect of nondeductible items
    
    
    14,907
    
    
    
    19,260
    
    
    
    46,326Other
    
    
    (16,607
    )
    
    
    (37,856
    )
    
    
    (8,350
    )Income tax expense
    
    $
    674,571
    
    
    $
    400,101
    
    
    $
    1,053,396
 10. RELATED PARTIES: The Sorokwasz Irrevocable Trust, whose trustee is Marshall Sorokwasz, the
President of the Company, and the Senior Vice President of the Company own
44.2% and 14.9% of the outstanding shares of common stock as of August 31, 2004
and 2003. A company controlled by the spouse of the Companys President serves as both a
customer of and vendor to the Company. Sales to this related company were
$751,216, $802,784 and $1,183,902 for the years ended August 31, 2004, 2003,
and 2002 respectively. Purchases from the related company totaled $315,808,
$265,749 and $419,568 for the years ended August 31, 2004, 2003 and 2002,
respectively. In the opinion of management, these transactions were
consummated on terms equivalent to those that would prevail in arms-length
transactions. Accounts receivable balances as of year end related to this
company were $64,071, $76,914 and $80,778 for 2004, 2003 and 2002,
respectively. For the years ended 2004, 2003 and 2002, the accounts payable
balances to the related company were $6,552, $ 7,531 and $7,251, respectively. F-19




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During Fiscal 2004, the Alexa subsidiary negotiated a real estate lease and
water supply agreement with a related party entity, Alexa Springs Water
Company, a company owned by the President and Senior Vice President. Subsequent
to August 31, 2004, the agreements were finalized, on November 3, 2004, the
Board authorized the President of Alexa to execute the agreements with an
effective date of December 1, 2004. Under the ten year water supply contract executed by Alexa with Alexa Springs
Water Company on December 1, 2004, Alexa must purchase all of the production of
the springs. Alexa also executed a ten year lease that runs concurrently with
the water supply agreement on the land and buildings, approximately 34,200
square feet, which house the springs. Both of these agreements have an
automatic renewal of second ten year terms if not terminated in accordance with
the agreements. 11. STOCK OPTIONS: The Company sponsors a stock option plan (the Plan) for certain employees and
directors of the Company. There are 400,000 shares of common stock reserved
for grants of options under the Plan. Options are granted at the sole
discretion of the Stock Option Committee of the Board of Directors of the
Company. The outstanding options generally vest ratably at various dates
through 2014 at an exercise price of not less than the fair market value at the
grant date. The options expire 10 years after the grant date. In addition, the Company granted outside of the Plan 196,000 options to
employees between the fiscal years ended August 31, 1999-2001. These options
vested ratably over two years at various dates through 2003 at an exercise
price of not less than fair market value at the grant date. These options
expire five years after the grant date. The following tables summarize information about stock options outstanding as
of August 31, 2004. Options Outstanding Weighted Average
    
    Weighted AverageRange of
    
    Number
    
    Remaining Contractual
    
    Exercisable PriceExercise Prices
    
    Outstanding
    
    Life (Years)
    
    Per Share$1.70-2.20
    
    
    97,000
    
    
    
    2.2
    
    
    $
    1.74$2.70-3.63
    
    
    81,000
    
    
    
    1.9
    
    
    $
    3.00$5.38-6.75
    
    
    231,200
    
    
    
    1.2
    
    
    $
    5.96$8.38-10.38
    
    
    9,500
    
    
    
    2.7
    
    
    $
    9.88$12.75-12.75
    
    
    3,000
    
    
    
    2.7
    
    
    $
    12.75Total
    
    
    421,700
    
    
    
    
    
    
    $
    4.56
 F-20




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Options Exercisable Weighted AverageRange of
    
    Number
    
    Exercisable PriceExercise Prices
    
    Exercisable
    
    Per Share$1.70-2.20
    
    
    93,500
    
    
    $
    1.73$2.70-3.63
    
    
    79,000
    
    
    $
    3.01$5.38-6.75
    
    
    231,200
    
    
    $
    5.96$8.38-10.38
    
    
    9,500
    
    
    $
    9.88$12.75-12.75
    
    
    3,000
    
    
    $
    12.75Total
    
    
    416,200
    
    
    $
    4.59
 The fair value of options granted during the years ended August 31, 2004, 2003
and 2002, calculated using the Black-Scholes option-pricing model, was
approximately $4,000 ($1.39 per share) $10,500 ($1.42 per share), and $6,500 ($
2.35 per share), respectively. Exercisable options total 416,200, 457,700, and
383,650 shares as of August 31, 2004, 2003 and 2002, respectively. These
options are exercisable at a weighted-average exercise price of $4.59, $4.52,
and $5.03, for the years ended August 31, 2004, 2003 and 2002, respectively. The following table summarizes stock option activity: WeightedAvailable
    
    AverageGranted
    
    for Grant
    
    PriceAugust 31, 2001
    
    
    470,400
    
    
    
    75,550
    
    
    $
    4.57Canceled
    
    
    (6,000
    )
    
    
    6,000
    
    
    $
    5.50Granted
    
    
    3,000
    
    
    
    (3,000
    )
    
    $
    3.35August 31, 2002
    
    
    467,400
    
    
    
    78,550
    
    
    $
    4.55Canceled
    
    
    (8,200
    )
    
    
    8,200
    
    
    $
    6.00Granted
    
    
    8,000
    
    
    
    (3,000
    )
    
    $
    2.17August 31, 2003
    
    
    467,200
    
    
    
    83,750
    
    
    $
    4.48Canceled
    
    
    (49,000
    )
    
    
    13,500
    
    
    $
    3.69Granted
    
    
    3,000
    
    
    
    (3,000
    )
    
    $
    2.70August 31, 2004
    
    
    421,200
    
    
    
    94,250
    
    
    $
    4.55
 12. EMPLOYEE 401(k) PLAN: TST has an employee 401(k) plan (the Plan) administered by a national
brokerage firm. F-21




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IMPRESO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Administrative fees associated with the Plan are funded by the Plan. TSTs
contribution is discretionary. In Fiscal 2004, TST did not match participating
employees contributions to their Plan accounts for the entire year.
Contributions by TST were $2,951, $35,176 and $32,319 for the years ended
August 31, 2004, 2003 and 2002, respectively. 13. NON-CASH ACTIVITY: During 2002, the Company financed the purchase of a building by issuing debt in
the amount of $3,200,000. During 2004, the Company financed leasehold improvements by issuing debt in the
amount of
$1,395,411. 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): The following tabulation presents selected results of operations for the years
ended August 31, 2004 and 2003: Quarters EndedNovember 30
    
    February 29
    
    May 31
    
    August 312004Net Sales
    
    $
    26,959,403
    
    
    $
    25,460,177
    
    
    $
    25,475,574
    
    
    $
    26,094,075Gross Profit
    
    
    3,679,902
    
    
    
    3,326,886
    
    
    
    3,516,017
    
    
    
    3,182,642Net Income
    
    
    482,216
    
    
    
    262,240
    
    
    
    348,051
    
    
    
    (78,912
    )Basic and Diluted Earnings per Share
    
    $
    0.09
    
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    (0.02
    )2003Net Sales
    
    $
    30,872,774
    
    
    $
    30,744,727
    
    
    $
    27,915,296
    
    
    $
    27,690,160Gross Profit
    
    
    3,569,427
    
    
    
    3,475,649
    
    
    
    3,569,313
    
    
    
    3,175,999Net Income
    
    
    304,620
    
    
    
    216,395
    
    
    
    324,515
    
    
    
    (227,699
    )Basic and Diluted Earnings per Share
    
    $
    0.06
    
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    (0.04
    )
 In the quarter ended May 31, 2003, the company wrote off $229,000 of a $458,000
bad debt expense due to the Chapter 11 bankruptcy of a large customer in that
quarter. In the quarter ended August 31, 2003, the Company wrote off the
balance of the receivable due in the amount of $229,000, based upon the
uncertainty of the customers ability to operate out of the Chapter 11. 15. SUBSEQUENT EVENT: On October 26, 2004, Alexa executed a $1.9 million equipment sale-leaseback
agreement with a commercial financial institution. The leased equipment
included a majority of the water bottling equipment located in our Mt. Ida,
Arkansas plant. F-22




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INDEX TO FINANCIAL STATEMENT SCHEDULES PageReport of Independent Public Accountants
Blackman Kallick Bartelstein, LLP
    
    
    S -2Schedule II- Valuation and Qualifying Accounts
    
    
    S-3
 S-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SUPPLEMENTAL INFORMATION
 To the Stockholders of Impreso, Inc.: We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements of Impreso, Inc. and subsidiaries as of August 31, 2004, which are
included in this Form 10-K and have issued our report thereon dated October 22,
2004, except for Notes 8 and 10, as to which the date is December 1, 2004, and
Note 15, as to which the date is October 26, 2004. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole of Impreso, Inc. and subsidiaries as of August 31, 2004 and
2003, and for each of the three years in the period ended August 31, 2004. The
2004, 2003 and 2002 information listed in the index to consolidated financial
statement schedules is the responsibility of the Companys management and is
presented for purposes of complying with the Securities and Exchange
Commissions rules and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic 2004, 2003 and 2002 consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as a
whole. Blackman Kallick Bartelstein, LLP
Chicago, Illinois
October 22, 2004, except for Notes 8 and 10, as to which the date is December
1, 2004, and Note 15, as to which the date is October 26, 2004. S-2




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SCHEDULE II IMPRESO, INC. AND SUBSIDIARIES (a) VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED AUGUST 31, 2004, 2003, AND 2002 AdditionsBalance at
    
    Additions
    
    Charged
    
    
    
    
    
    Balance atBeginning
    
    Charged
    
    to other
    
    
    
    
    
    End ofof Period
    
    to Income
    
    Accounts
    
    Deductions
    
    PeriodAugust 31, 2004:Allowance for doubtful accounts
    
    $
    630,916
    
    
    $
    753,774
    
    
    $
    
    
    
    $
    (254,375
    )(b)
    
    $
    1,130,315Inventory Reserves
    
    
    388,118
    
    
    
    
    
    
    
    
    
    
    
    79,391
    
    
    
    308,727Total reserves and allowances
    
    $
    630,916
    
    
    $
    753,774
    
    
    $
    
    
    
    $
    (254,375
    )
    
    $
    1,130,315August 31, 2003:Allowance for doubtful accounts
    
    $
    515,010
    
    
    $
    684,459
    
    
    $
    
    
    
    $
    (568,553
    )(b)
    
    $
    630,916Inventory Reserves
    
    
    753,715
    
    
    
    191,581
    
    
    
    
    
    
    
    (557,178
    )
    
    
    388,118Total reserves and allowances
    
    $
    1,268,725
    
    
    $
    876,040
    
    
    $
    
    
    
    $
    (1,125,731
    )
    
    $
    1,019,034August 31, 2002:Allowance for doubtful accounts
    
    $
    342,780
    
    
    $
    258,100
    
    
    $
    
    
    
    $
    (85,870
    )(b)
    
    $
    515,010Inventory Reserves
    
    
    363,064
    
    
    
    390,651
    
    
    
    
    
    
    
    
    
    
    
    753715Total reserves and allowances
    
    $
    705844
    
    
    $
    648,751
    
    
    $
    
    
    
    $
    (85,870
    )
    
    $
    1,268,725
  (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




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized. Impreso, Inc.By: /s/ Marshall D. SorokwaszMarshall D. Sorokwasz, President
 Dated: December 14, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/Marshall D. Sorokwasz
    
    Chairman of the Board,
    
    December 14, 2004President, Principal ExecutiveMarshall D. Sorokwasz
    
    Officer and Treasurer/s/ Richard D. Bloom
    
    Senior Vice President of Operations,
    
    December 14, 2004DirectorRichard D. Bloom/s/ Donald E. Jett
    
    Secretary, Director
    
    December 14, 2004Donald E. Jett/s/ Susan M. Atkins
    
    Vice President of Finance,
    
    December 14, 2004Principal Financial Officer,Susan M. Atkins
    
    Principal Accounting Officer/s/ Jay W. Ungerman
    
    Director
    
    December 14, 2004Jay W. Ungerman/s/ Robert F. Torisio
    
    Director
    
    December 14, 2004Robert F. Troisio/s/ Ian Ratner
    
    Director
    
    December 14, 2004Ian Ratner




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INDEX TO EXHIBITS Exhibit No.
    
    Description of Exhibits2.1
    
    Plan and Agreement of Merger, dated as of December 1, 1999, among
TST/Impreso, Inc., Impreso, Inc. and TST Merger Corp. (incorporated by
reference to Appendix A of the Companys Registration Statement on Form
S-4, No. 333-92381)2.2(a)
    
    Asset Purchase Agreement by and between TST/Impreso, Inc. and Durango
Georgia Converting LLC dated as of April 5, 2001 (incorporated by reference
to Exhibit 2.1 of the Companys Quarterly Report on Form 10-Q, for the
quarter ended May 31, 2001)2.2(b)
    
    Asset Purchase Agreement by and between TST/Impreso, Inc. and Bank of
America, N.A. and consented to by United Computer Supplies, Inc., United
Computer Supplies-East, Inc. and John R. Zimmerman dated as of March 19,
2002 (incorporated by reference to Exhibit 2.1 of the Companys Quarterly
Report on Form 10-Q, for the quarter ended May 31, 2002)2.2(c)
    
    Real Estate Purchase and Sale Agreement by and between United Computer
Supplies, Inc. and TST/Impreso, Inc. dated as of March 15, 2002
(incorporated by reference to Exhibit 2.21 of the Companys Quarterly
Report on Form 10-Q, for the quarter ended May 31, 2002)3(a)
    
    Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3(a) to the Companys Registration Statement on Form S-4, No.
333-92381)3(b)
    
    By-laws of the Company (incorporated by reference to Exhibit 3(b) to the
Companys Registration Statement on Form S-4, No. 333-92381)4.1
    
    Form of Underwriters Warrant (incorporated by reference to Exhibit 4.1 to
the Companys Registration Statement on Form S-1, No. 33-93814)10(a)
    
    1995 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the
Companys Registration Statement on Form S-1, No. 33-93814)10(b)
    
    Employment Agreement dated January 27, 1999, between the Company and
Marshall Sorokwasz (incorporated by reference to Exhibit 10.2 to the
Companys Registration Statement on Form S-1, No. 33-93814)10(c)
    
    IBM Brand Paper Trademark Licensing Agreement, effective as of April 30,
1997 and Amendment No. 1 thereto, between TST/Impreso, Inc. and
International Business Machines Corporation (incorporated by reference to
Exhibit 10(c) of the Companys Quarterly Report on Form 10-Q/A, dated July
15, 1997) [Confidential treatment has been granted for certain portions of
this Exhibit]10(d)
    
    Amendment Number 2 to the IBM Brand Paper Trademark Licensing Agreement,
dated March 5, 1999, between TST/Impreso, Inc. and International Business
Machines Corporation (incorporated by reference to Exhibit 10(d) of the
Companys amended Quarterly Report on Form 10-Q/A, dated June 17, 1999)
[Confidential treatment has been granted for certain portions of this
Exhibit]10(e)
    
    Crayola License Agreement made as of February 6, 2002, with an effective
date of March 1, 2002, by and between Binney & Smith Properties, Inc. and
TST/Impreso, Inc. (incorporated by reference to Exhibit 10(e) of the
Companys amended Quarterly Report on Form 10-Q/A dated May 1, 2002)
[Confidential treatment has been granted for certain portions of this
Exhibit]10(f)
    
    Employment Agreement dated January 27, 2004, between the Company and
Marshall Sorokwasz (incorporated by reference to Exhibit 10(f) to the
Companys Quarterly Report on Form 10-Q, dated February 29, 2004)10 (g)
    
    Equipment Lease Agreement dated October 26, 2004 between Alexa Springs,
Inc. and General Electric Capital Corporation (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K, dated October 26,
2004).10(h)
    
    Real Estate Lease Agreement dated December 1, 2004, between Alexa Springs,
Inc. and Alexa Springs Water Company. (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K, dated December 1, 2004).10(i)
    
    Water Supply Agreement dated December 1, 2004, between Alexa Springs, Inc.
and Alexa Springs Water Company. (incorporated by reference to Exhibit 10.2
to the Companys Current Report on Form 8-K, dated December 1, 2004).21
    
    Subsidiaries of the Registrant31.1
    
    Certificate Pursuant to Section 302 of Sarbanes  Oxley Act of 2002 for CEO.31.2
    
    Certificate Pursuant to Section 302 of Sarbanes  Oxley Act of 2002 for CFO.32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




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Exhibit No.
    
    Description of Exhibits32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    Value, Inc. Fairness Opinion (incorporated by reference to Exhibit 99.1 to
the Companys Current Report on Form 8-K, dated December 1, 2004)