UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2002
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
COMMISSION FILE NUMBER 000-29883
IMPRESO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-20849585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
652 SOUTHWESTERN BOULEVARD
COPPELL, TEXAS 75019
(Address of principal executive offices)
(972) 462-0100
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date.
Class of Common Stock Shares outstanding at April 12, 2001
- --------------------- ------------------------------------
$0.01 Par Value 5,278,780
IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
FEBRUARY 28, 2002
INDEX
<Table>
<Caption>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Consolidated Financial Statements:
Interim Consolidated Balance Sheets at February 28,
2002 (Unaudited) and August 31, 2001 1
Interim Consolidated Statements of Operations for the
Three and Six Months Ended February 28, 2002 and February 28, 2001
(Unaudited) 3
Interim Consolidated Statements of Cash Flows for the
Six Months Ended February 28, 2002 and February 28, 2001
(Unaudited) 4
Notes to Interim Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
INDEX TO EXHIBITS 16
</Table>
IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<Table>
<Caption>
February 28, August 31,
2002 2001
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 275,563 $ 211,352
Trade accounts receivable, net of allowance for doubtful
accounts of $459,270 at February 28, 2002 and
$342,780 at August 31, 2001 11,517,351 11,748,088
Inventories 36,051,300 38,459,817
Prepaid expenses and other 335,674 234,411
Deferred income tax assets 159,423 116,545
------------ ------------
Total current assets 48,339,311 50,770,213
------------ ------------
Property, plant and equipment, at cost 21,829,250 21,725,088
Less-Accumulated depreciation (11,088,137) (10,511,892)
------------ ------------
Net property, plant and equipment 10,741,113 11,213,196
------------ ------------
Other assets 217,188 219,188
------------ ------------
Total assets $ 59,297,612 $ 62,202,597
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
1
IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
February 28, August 31,
2002 2001
------------ ------------
(Unaudited)
Current liabilities:
Accounts payable $ 16,926,215 $ 18,572,200
Accrued liabilities 2,046,880 1,942,241
Current maturities of long-term debt 673,886 1,404,562
Line of credit 17,001,340 18,308,338
Current maturities of prepetition debt 7,634 7,484
------------ ------------
Total current liabilities 36,655,955 40,234,825
Deferred income tax liability 971,596 926,675
Long-term debt, net of current maturities 5,753,209 6,083,279
Long-term portion of prepetition debt, net of current maturities 241,297 245,175
------------ ------------
Total liabilities 43,622,057 47,489,954
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized;
0 shares issued and outstanding -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
5,292,780 shares issued and 5,278,780 shares outstanding 52,928 52,928
at February 28, 2002 and August 31, 2001
Warrants 33,974 --
Treasury Stock (14,000 shares, at cost) (38,892) (38,892)
Additional paid-in capital 6,319,682 6,319,682
Retained earnings 9,307,863 8,378,925
------------ ------------
Total stockholders' equity 15,662,660 14,712,643
------------ ------------
Total liabilities and stockholders' equity $ 59,297,612 $ 62,202,597
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
2
IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Six Months Ended
February 28, February 28, February 28, February 28,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net Sales $ 26,342,394 $ 21,289,448 $ 51,743,754 $ 42,539,654
Cost of sales 23,512,481 18,840,876 46,315,223 37,795,005
------------ ------------ ------------ ------------
Gross profit 2,829,913 2,448,572 5,428,531 4,744,649
Other costs and expenses:
Selling, general and administrative 2,122,827 1,847,403 4,221,601 3,637,594
Interest expense 378,578 383,369 831,072 729,869
Other expense (income), net 42,583 (47,348) (1,110,844) (94,331)
------------ ------------ ------------ ------------
Total other costs and expenses 2,543,988 2,183,424 3,941,829 4,273,132
Income before income tax expense 285,925 265,148 1,486,702 471,517
Income tax expense:
Current 122,961 91,595 555,721 162,398
Deferred (45) 10,735 2,043 19,135
------------ ------------ ------------ ------------
Total Income Tax Expense 122,916 102,330 557,764 181,533
Net income $ 163,009 $ 162,818 $ 928,938 $ 289,984
============ ============ ============ ============
Net income per common share
(basic and diluted) $ 0.03 $ 0.03 $ 0.18 $ 0.05
============ ============ ============ ============
Weighted average shares outstanding 5,278,780 5,279,313 5,278,780 5,284,432
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
3
IMPRESO, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
Six Months Ended
----------------
February 28 February 28
2002 2001
----------- -----------
Cash Flows From Operating Activities
Net income $ 928,938 $ 289,984
Adjustments to reconcile net income to net cash
used in operating activities-
Depreciation and amortization 576,565 396,012
Amortization of Stock Compensation 21,079 --
Loss (Gain) sale of property, plant, and equipment 833 (4,632)
Increase in deferred income taxes 2,043 19,135
Decrease in accounts receivable, net 230,737 1,155,025
Decrease (Increase) in inventories 2,408,517 (1,410,179)
Increase in prepaid expenses and other (101,263) (478,357)
Decrease (Increase) in other non current assets 14,895 (61,634)
(Decrease) Increase in accounts payable (1,645,985) 2,807,795
Increase (Decrease) in accrued liabilities 104,639 (701,044)
----------- -----------
Net cash provided by operating activities 2,540,998 2,012,105
----------- -----------
Cash Flows From Investing Activities:
Additions to property, plant, and equipment (105,315) (159,686)
----------- -----------
Net cash used in investing activities (105,315) (159,686)
Cash Flows From Financing Activities:
Net payments on line of credit (1,306,998) (1,802,319)
Payments on prepetition debt (3,728) (3,552)
Net (payments) borrowings on postpetition debt, net (1,060,746) 10,932
Purchase of Treasury Stock -- (38,892)
----------- -----------
Net cash used in financing activities (2,371,472) (1,833,831)
----------- -----------
Net increase in cash and cash equivalents 64,211 18,588
Cash and cash equivalents, beginning of period 211,352 149,527
----------- -----------
Cash and cash equivalents, end of period $ 275,563 $ 168,115
=========== ===========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
4
IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS:
Impreso, Inc., a Delaware corporation (referred to collectively with its
subsidiaries as the "Company"), is the parent holding company of TST/Impreso,
Inc. ("TST"), a manufacturer and distributor to dealers and other resellers of
paper and film products for commercial and home use in domestic and
international markets, and Hotsheet.com, Inc., the owner and operator of the
Hotsheet.com web portal. TST's product line consists of standard continuous
computer stock business forms; thermal facsimile paper; cut sheet products such
as copy paper, ink jet paper, digital photo paper and transparencies; fine
business stationary; point of sale and cash register machine rolls; high speed
laser roll paper; wide format engineering rolls; wide format ink jet media; and
processed laser cut sheets. TST has one wholly owned subsidiary, TST/Impreso of
California, Inc., which was formed to support the activities of the paper
converting segment of the Company's business.
2. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
In the opinion of management, the unaudited Interim Consolidated Financial
Statements of the Company include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position as of February 28, 2002, and its results of operations for
the three and six months ended February 28, 2002 and February 28, 2001. Results
of the Company's operations for the interim period ended February 28, 2002, may
not be indicative of results for the full fiscal year. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations promulgated by the Securities and
Exchange Commission (the "SEC").
The unaudited Interim Consolidated Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements and accompanying
notes of the Company and its subsidiaries, included in the Company's Form 10-K
(the "Company's Form 10-K"), for the fiscal year ended August 31, 2001 ("Fiscal
2001"). Accounting policies used in the preparation of the unaudited Interim
Consolidated Financial Statements are consistent in all material respects with
the accounting policies described in the Notes to Consolidated Financial
Statements in the Company's Form 10-K.
3. INVENTORIES:
Inventories are stated at the lower of cost (principally on a first-in,
first-out basis) or market and include material, labor and factory overhead.
Inventories consisted of the following:
<Table>
<Caption>
February 28, August 31,
2002 2001
----------- -----------
Finished goods $18,730,383 $20,537,593
Raw materials 16,550,168 17,405,968
Supplies 698,761 464,679
Work-in-process 71,988 51,577
----------- -----------
Total inventories $36,051,300 $38,459,817
=========== ===========
</Table>
5
4. LONG-TERM DEBT AND LINE OF CREDIT:
The following is a summary of long-term debt and line of credit:
<Table>
<Caption>
February 28, August 31,
2002 2001
---- ----
Line of Credit with a commercial financial corporation under revolving credit
line maturing May 2003, secured by inventories, trade accounts receivable,
equipment, goodwill associated with TST's trademark "IMPRESO" (no value on
financial statements), and a personal guarantee by the trustee of a trust which
is a majority stockholder of the Company, interest payable monthly at
prime plus .25% (5.0% at February 28, 2002). $ 17,001,340 $ 18,308,338
Note payable to a commercial financial corporation, secured by real property,
payable in monthly installments of $15,151 (including interest at 9.5%, or 4.5%
above the 11th District cost of funds rate, whichever is greater) (9.5% at
February 28, 2002), maturing August
2008. 1,665,895 1,672,731
Note 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 December 2009. 298,645 311,942
Note 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 August 2010. Revolving
lender's blanket lien subordinated to note's collateral. 782,147 812,436
Note payable to a commercial financial corporation, secured by real property,
payable in monthly installments of $2,834 (including
interest at 5.5%), maturing November 2010. 232,910 243,318
Notes payable to various commercial financial corporations, secured by
equipment, interest rates ranging from 1.9% to 11.17%,
maturing at various dates from December 2002 thru July 2005. 555,073 638,289
Notes payable to a commercial financial corporation, secured by real property
and a personal guarantee by the trustee of a trust which is a majority
stockholder of the Company, payable in monthly installments of $21,407
(including interest at 8%), maturing
May 2011. 2,173,111 2,213,667
Acquisition note payable, unsecured, payable in quarterly installments of
$15,000 (including interest at 8%), maturing April
2006. 255,000 285,000
</Table>
6
<Table>
Acquisition note payable, secured by equipment, payable in
monthly installments of $16,024, no interest, maturing May 2003. 464,314 560,458
Note payable, unsecured, payable in three weekly installments of $200,000
beginning in November 2001 and one final payment of
$150,000, no interest, matured November 2001. --- 750,000
Prepetition-
Note payable to a commercial financial corporation, secured by real property and
equipment and a personal guarantee by the trustee of a trust which is a majority
stockholder of the Company, payable in monthly installments of $1,461 (including
interest at 4%), maturing
June 2023. 248,931 252,659
------------ -------------
Total 23,677,366 26,048,838
Less-Current maturities (17,682,860) (19,720,384)
------------ -------------
Long-term debt $ 5,994,506 $ 6,328,454
============ =============
</Table>
Prepetition amount listed above represents the renegotiated amounts and terms
under the 1993 plan of reorganization.
As of February 28, 2002, the revolving credit line is limited to the lesser of
$22 million or a percentage of eligible trade accounts receivable and
inventories, as defined. On February 28, 2002, the remaining availability under
the revolving credit line was $5 million.
In March 2002, TST entered into a two year renewal of its revolving line of
credit. The amended agreement increases the line from $22 million to $25
million, the inventory sub-limit from $17.5 million to $21 million, and extends
the maturity date to May 2004.
The line of credit has restrictive covenants requiring the maintenance of a
minimum tangible net worth and working capital requirements, as defined. One of
the notes payable contains restrictive covenants on current and debt to worth
ratios, and the payment of cash dividends. As of February 28, 2002, the Company
was in compliance with all covenants.
5. SUPPLEMENTAL CASH FLOW INFORMATION:
<Table>
<Caption>
Six Months Ended
February 28 February 28
2002 2001
---- ----
Cash paid during the period for:
Interest $831,072 $729,869
Income taxes $545,446 $144,216
Noncash Investing Activities:
Issuance of Warrant to Vendor $ 21,079 $ ---
</Table>
7
6. SIGNIFICANT CONTRACT:
TST entered into a non-exclusive Trademark Licensing Agreement with Binney &
Smith Properties, Inc., owner of the Crayola(R) Trademark, on February 6, 2002.
The agreement is for a term of one year and provides that the Company will
manufacture and distribute products branded with Crayola Licensed Marks.
TST/Impreso, Inc. has agreed to maintain certain quality standards and minimum
royalty payments.
7. STOCK OPTIONS AND WARRANTS:
On April 3, 2002, the Company filed a Registration Statement on Form S-3 with
the Securities and Exchange Commission to register the sale of up to 441,000
shares of Common Stock of the Company. The shares subject to such registration
are 50,000 shares issuable on exercise of a Consultant's Warrant, 191,000 shares
issuable on exercise of options granted to employees outside of a stock option
plan, and 200,000 shares held by certain founders of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED FEBRUARY 28, 2002 AND
FEBRUARY 28, 2001.
Net Sales---Net sales increased from $21.3 million in the three months ended
February 28, 2001, to $26.3 million in the same period for the year ending
August 31, 2002 ("Fiscal 2002"), an increase of $5 million or 23.7%. Net sales
increased from $42.5 million in the six months ended February 28, 2001, to $51.7
million in the same period in Fiscal 2002, an increase of $9.2 million, or
21.6%. Net sales increased in the first and second quarters of Fiscal 2002 as a
result of the acquisition of the Sky Division of Durango-Georgia Converting, LLC
in April, 2001.
Gross Profit---Gross profit increased from $2.4 million in the three months
ended February 28, 2001, to $2.8 million in the three months ended February 28,
2002, an increase of 15.6%. Gross profit increased from $4.7 million in the six
months ended February 28, 2001, to $5.4 million in the same period in 2002, an
increase of $684,000, or 14.4%. Gross profit as a percentage of net sales
decreased from 11.5%, in the second quarter of Fiscal 2001 to 10.7% in the
corresponding period of Fiscal 2002. Gross profit as a percentage of net sales
decreased from 11.2% in the six month period ended February 28, 2001, to 10.5%
in the same period in Fiscal 2002. Gross profit as a percentage of net sales
decreased in the three and six month periods ended February 28, 2002, as
compared to the corresponding periods of the prior year, resulting from the
acquisition of a commodity product producer, Sky, which increased sales of lower
margin products as a percentage of net sales.
Selling, General, and Administrative Expenses----SG&A expenses increased from
$1.8 million in the three months ended February 28, 2001, to $2.1 million in the
corresponding period of Fiscal 2002, an increase of $275,000, or 14.9%. SG&A as
a percentage of net sales decreased from 8.7% in the second quarter of Fiscal
2001, to 8.1% in the corresponding period of Fiscal 2002. SG&A expenses
increased from $3.6 million, or 8.6% of net sales for the six months ended
February 28, 2001, to $4.2 million, or 8.2% of net sales in the same period of
Fiscal 2002. The increase in SG&A as a dollar amount and decrease as a
percentage of net sales for the three and six month periods ended February 28,
2002, resulted primarily from the increase in basic expenditures required to
create additional sales and efficiencies obtained with an increased sales
volume.
Interest Expense----Interest expense decreased from $383,000 in the three months
ended February 28, 2001, to $379,000 in the same period of Fiscal 2002, a
decrease of 1.2%. Interest expense increased from $730,000 in the six months
ended February 28, 2001, to $831,000 in the corresponding period of Fiscal 2002,
an increase of 13.9%. The decrease in interest expense for the three months
ended February 28, 2002, and the increase in interest expense for the six months
ended February 28, 2002, was primarily attributable to increased borrowings
incurred to finance TST's acquisition of Sky, which
8
was partially offset in the First Quarter of Fiscal 2002 by reduced interest
rates on our revolving line of credit.
Other Expense (Income)--On October 16, 2001, TST/Impreso, Inc. received
approximately $1 million in a United States class action lawsuit involving
international and domestic manufacturers' alleged attempt to fix jumbo roll
thermal facsimile paper prices in the United States. TST/Impreso, Inc. was not a
named plaintiff and did not participate in the lawsuit. The plaintiff class
settled the six year old suit with the defendants. The award is reported as
other income in First Quarter 2002.
Income Taxes--- Income tax expense increased from $102,000 for the three months
ended February 28, 2001, to $123,000 in the second quarter of Fiscal 2002.
Income tax expense increased from $182,000 for the six months ended February 28,
2001, to $558,000 in the six months ended February 28, 2002. The increase in
income tax expense for the three months ended February 28, 2002, was
attributable to an increase in profit. The increase in income tax expense for
the six months ended February 28, 2002, was due to the receipt of a taxable
litigation settlement.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $11.7 million at February 28, 2002 from $10.5
million at August 31, 2001. This represented an increase of 10.9%.
In March 2002, TST amended its agreement with a bank for a two-year renewal of
its revolving line of credit. The amended agreement also increases the line from
$22 million to $25 million and the inventory sub-limit from $17.5 to $21
million. The loan is secured by, among other things, inventory, trade
receivables, equipment and a personal guarantee of Marshall Sorokwasz, our
Chairman of the Board and President, and Trustee of a trust which is a principal
shareholder of our Company. Available borrowings under this line of credit,
which accrues interest at the prime rate of interest plus .25% (5.0% at February
28, 2002), are based upon specified percentages of eligible accounts receivable
and inventories. As of February 28, 2002, there was a $5 million borrowing
capacity remaining under the $22 million revolving line of credit. The amended
revolving credit line will mature in May 2004.
On March 19, 2002, we completed the purchase of substantially all of the
personal property assets of United Computer Supplies, Inc. and United Computer
Supplies-East, Inc. (collectively, "United"). The Company paid approximately
$3.6 million in cash for United's personal property assets and expects to pay
approximately $4.9 million for United's real property and intangible assets,
which acquisition of the real property is expected to close within 45 days of
the acquisition of the personal property. The acquisition of United's real
property assets is subject to certain contingencies and conditions to closing
contained in the Real Estate Purchase and Sale Agreement by and between United
and the Company. The funding of this purchase was accomplished by renewing,
extending, and increasing our revolving line of credit from $22 million to $25
million, with the increased line collateralized by the inventory acquired in
this acquisition, and by obtaining a $1 million loan from another commercial
financial institution secured by equipment.
The Company expects to pledge the plant facility expected to be acquired in the
real estate transaction to Bloomingdale Bank & Trust, which is expected to
provide $3 million in funding of the $4 million purchase price. Funding with
respect to the real property assets is subject to negotiation and execution of
definitive agreements between the Company and Bloomingdale Bank & Trust.
We believe that the funds available under the loans encumbering our California,
Texas, Pennsylvania and West Virginia plants, the revolving credit facility,
cash and cash equivalents, trade credit and internally generated funds will be
sufficient to satisfy our requirements for working capital and capital
expenditures for at least the next twelve months. Such belief is based on
certain assumptions, including the continuation of current operations and no
extraordinary adverse events, and there can be no assurance that such
assumptions are correct. In addition, expansion of our operations due to an
9
increased demand for products TST manufactures or significant growth of
Hotsheet.com, Inc. may require us to obtain additional capital to add new
operations or manufacturing facilities. If that should occur, we anticipate that
the funds required would be generated through securities offerings or additional
debt. There can be no assurance that any additional financing will be available
if needed, or, if available, will be on acceptable terms.
As of February 28, 2002, we did not own derivative or other financial
instruments for trading or speculative purposes. The implementation of Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" does not have a material impact on our
financial position or results of operations.
TRADEMARK LICENSING
TST entered into a non-exclusive Trademark Licensing Agreement with Binney &
Smith Properties, Inc., owner of the Crayola Trademark, on February 6, 2002,
with an effective date of March 1, 2002. The agreement is for a term of one year
and provides that TST will manufacture and distribute products branded with
Crayola Licensed Marks in exchange for specified payments. TST has agreed to
maintain certain quality standards and minimum royalty payments. There can be no
assurance that TST will experience increased sales as a result of this
agreement, or if increased sales occur, that they will be profitable.
INVENTORY MANAGEMENT; RAW MATERIALS OF TST
We believe that it is necessary for TST to maintain a large inventory of
finished goods and raw materials to adequately service its customers. In recent
years inventory levels had been increased to facilitate the introduction of new
brands and expanded product lines. At the beginning of Fiscal 2002, management
implemented a program to reduce inventory. In the first and second quarters of
Fiscal 2002, management has reduced inventory levels of TST. From August 31,
2001 to February 28, 2002 inventory levels were reduced 6.3%. Management intends
to continue reducing inventory levels through the third and fourth quarters of
Fiscal 2002. However, downward pressures on raw material prices could compress
the market for our existing inventory and have a material adverse effect on the
results of operations of TST, or restrain managements attempts at reducing
inventory. Raw material paper costs remained stable in the first and second
quarters of Fiscal 2002. Raw material suppliers have announced a price increase
which is expected to be effective in May 2002, but management believes that raw
material paper costs will subsequently stabilize through the remainder of Fiscal
2002.
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
September 11, 2001's impact on the economy has also impacted the net sales of
TST; however, the exact impact on the results of operations is not
ascertainable. Although net sales in the six months ended February 28, 2002, as
compared to
10
the six months ended February 28, 2001, increased 21.6%, the Company expected
net sales to have been significantly higher due to the acquisition of Sky in
April 2001 and reduction in the market place of competitors of the Company's
products. Management believes that the slowed economy will continue to effect
the third quarter 2002 results of operations.
Management believes that despite the slower economy, its operations will remain
profitable due to a reduction of competitors in the marketplace and our ability
to maintain finished goods pricing. If selling prices for products manufactured
by us cannot increase in relation to raw material cost increases, or if prices
for products manufactured by us decline as a result of market pressures, our
results of operations could be materially adversely affected.
SEASONALITY
TST may be subject to certain seasonal fluctuations in that orders for products
may decline over the summer months. However, we do not believe that such
fluctuations have a material adverse effect on our results of operations.
Hotsheet.com revenues are partially generated by retail sales which are
typically stronger during the Christmas holiday season.
SUBSEQUENT EVENTS
On March 19, 2002, TST entered into an Asset Purchase Agreement with Bank of
America, NA and a Real Estate Purchase Agreement with United to purchase
substantially all of the assets of United for approximately $8.5 million.
Completion of the real estate portion of the transaction, which is scheduled to
close later this month, is subject to certain contingencies and conditions to
closing. United's manufacturing facility is located in Itasca, Illinois and
produces primarily continuous feed business forms in addition to small rolls and
other products. The addition of this plant strengthens TST's East Coast
production and delivery, and increases the number of TST's manufacturing
facilities to five. Recently, United's annual sales have exceeded $30 million.
Management believes the addition of the assets of United to TST will result in a
substantially larger company with the resources to aggressively expand its share
of the business forms market.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q 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.
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not exposed to market risks such as foreign currency exchange rates, but
are exposed to risks such as variable interest rates. Market risk is the
potential loss arising from adverse changes in market prices and rates. Our
subsidiaries do not have supply contracts with any of their foreign vendors. All
foreign vendors are paid in United States currency. In addition, TST's
international sales of finished goods is insignificant. Accordingly, there are
not sufficient factors to create a material foreign exchange rate risk;
therefore, we do not use exchange commitments to minimize the negative impact of
foreign currency fluctuations.
We had both fixed-rate and variable-rate debts as of February 28, 2002. The fair
market value of long- term variable interest rate debt is subject to interest
rate risk. Generally the fair market value of variable interest rate debt will
decrease as interest rates fall and increase as interest rates rise.
The estimated fair value of our total long-term fixed rate and floating rate
debt approximates carrying value. Based upon our market risk sensitive debt
outstanding at February 28, 2002, there was no material exposure to our
financial position or results of operations.
12
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description of Exhibits
10+ 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.*
(b) Reports on Form 8-K
On April 3, 2002, we filed a Current Report on Form 8-K, dated
March 19, 2002, to report the acquisition of substantially all of
the personal property assets of United Computer Supplies, Inc. and
United Computer Supplies-East, Inc., as well as the Real Estate
Sale Agreement dated March 15, 2002. The following exhibits were
filed with the Form 8-K:
Exhibit No. Description of Exhibits
2.1 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
2.2 Real Estate Purchase and Sale Agreement by
and between United Computer Supplies-East,
Inc. and TST/Impreso, Inc. dated as of
March 15, 2002
99.1 Impreso, Inc. Press Release issued March
20, 2002 announcing the closing of the
purchase
+ Confidential Treatment requested for portions of this Exhibit
* Filed by Amendment
13
SIGNATURES
Pursuant to the requirements 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.
Dated: April 15, 2002
Impreso, Inc.
(Registrant)
/s/ Marshall Sorokwasz
--------------------------------------
Marshall Sorokwasz
Chairman of the Board, Chief
Executive Officer, President,
and Director
/s/ Susan Atkins
--------------------------------------
Susan Atkins
Chief Financial Officer
and Vice President
14
INDEX TO EXHIBITS
<Table>
<Caption>
Exhibit No. Description of Exhibits
- ----------- -----------------------
10+ 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.*
</Table>
+ Confidential Treatment requested for portions of this Exhibit
* Filed by Amendment