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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) þ
     Quarterly report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period
ended February 28, 2005
 OR o
     Transition report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 
 Commission File Number 000-29883 Impreso, Inc.  Delaware
    
    75-2849585(State or other jurisdiction of
    
    (I.R.S. Employerincorporation 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 þ
    
    No o
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2).
Yes o No þ 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 18, 2005$0.01 Par Value
    
    5,278,780




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IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
February 28, 2005 INDEX Page NumberPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements:Interim Condensed Consolidated Balance Sheets as of February 28, 2005
(Unaudited) and August 31, 2004
    
    
    1Interim Condensed Consolidated Statements of Operations for the
Three and Six Months Ended February 28, 2005 and February 29, 2004
(Unaudited)
    
    
    3Interim Condensed Consolidated Statements of Cash Flows for the
Three and six Months Ended February 28, 2005 and February 29, 2004
(Unaudited)
    
    
    4Notes to Interim Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    22Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3.
    
    Defaults upon Senior Securities
    
    
    22Item 4.
    
    Submission of Matters to a vote of Security Holders
    
    
    22Item 5.
    
    Other Information
    
    
    22Item 6.
    
    Exhibits
    
    
    22SIGNATURES
    
    
    23INDEX TO EXHIBITS
    
    
    24Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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IMPRESO, INC. AND SUBSIDIARIES 
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS  February 28,
    
    
    August 31,2005
    
    
    2004Current assets:Cash and cash equivalents
    
    $
    794,812
    
    
    $
    173,313Trade accounts receivable, net of allowance for doubtful accounts
of $1,028,053 at February 28, 2005 and $1,130,315 as of August 31, 2004
    
    
    9,872,443
    
    
    
    12,666,433Receivable, IRS
    
    
    1,233,373
    
    
    
    Inventories, net of reserves
    
    
    25,860,388
    
    
    
    22,643,558Prepaid expenses and other
    
    
    315,377
    
    
    
    330,039Assets held for sale
    
    
    2,141,289
    
    
    
    Deferred income tax assets
    
    
    675,336
    
    
    
    736,810Total current assets
    
    
    40,893,018
    
    
    
    36,550,153Property, plant and equipment, at cost
    
    
    26,982,968
    
    
    
    29,417,303Less-Accumulated depreciation
    
    
    (14,033,713
    )
    
    
    (14,295,714
    )Net property, plant and equipment
    
    
    12,949,255
    
    
    
    15,121,589Noncurrent assetsOther assets
    
    
    130,252
    
    
    
    81,778Deferred income tax assets
    
    
    278,878
    
    
    
    318,718Total noncurrent assets
    
    
    409,130
    
    
    
    400,496Total assets
    
    $
    54,251,403
    
    
    $
    52,072,238
 The accompanying notes are an integral part of the condensed consolidated financial statements 1




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IMPRESO, INC. AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS EQUITY
(Unaudited) February 28,
    
    
    August 31,2005
    
    
    2004Current liabilities:Accounts payable
    
    $
    11,213,851
    
    
    $
    12,711,758Accrued liabilities
    
    
    995,773
    
    
    
    987,921Accrued commissions
    
    
    2,123,593
    
    
    
    1,863,698Current maturities of long-term debt
    
    
    1,342,783
    
    
    
    1,407,070Line of credit
    
    
    10,679,564
    
    
    
    6,851,479Current maturities of prepetition debt
    
    
    8,534
    
    
    
    8,384Total current liabilities
    
    
    26,364,098
    
    
    
    23,830,310Deferred income tax liability
    
    
    1,168,168
    
    
    
    998,730Deferred gain
    
    
    697,197
    
    
    
    796,796Long-term debt, net of current maturities
    
    
    9,720,151
    
    
    
    8,171,228Long-term portion of prepetition debt, net of current maturities
    
    
    216,359
    
    
    
    220,689Total liabilities
    
    
    38,165,973
    
    
    
    34,017,753Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized;
    
    
    
    
    
    
    0 shares
issued and outstandingCommon stock, $.01 par value; 15,000,000 shares authorized;
    
    
    52,928
    
    
    
    52,9285,292,780 issued and 5,278,780 outstandingTreasury stock (14,000 shares, at cost)
    
    
    (38,892
    )
    
    
    (38,892
    )Additional paid-in capital
    
    
    6,353,656
    
    
    
    6,353,656Retained earnings
    
    
    9,717,738
    
    
    
    11,686,793Total stockholders equity
    
    
    16,085,430
    
    
    
    18,054,485Total liabilities and stockholders equity
    
    $
    54,251,403
    
    
    $
    52,072,238
 The accompanying notes are an integral part of the condensed consolidated financial statements 2




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IMPRESO, INC. AND SUBSIDIARIES 
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    18,629,137
    
    
    $
    25,762,472
    
    
    $
    38,605,771
    
    
    $
    52,489,187Cost of sales
    
    
    18,072,991
    
    
    
    22,754,614
    
    
    
    37,069,767
    
    
    
    46,100,568Gross profit
    
    
    556,146
    
    
    
    3,007,858
    
    
    
    1,536,004
    
    
    
    6,388,619Gain on sale of assets
    
    
    (42,685
    )
    
    
    
    
    
    
    (101,909
    )
    
    
    Selling, General and administrative expenses
    
    
    2,092,286
    
    
    
    2,265,260
    
    
    
    4,378,136
    
    
    
    4,547,254Operating (loss) Income
    
    
    (1,493,455
    )
    
    
    742,598
    
    
    
    (2,740,223
    )
    
    
    1,841,365Other expenses (income):Interest expense
    
    
    339,332
    
    
    
    295,083
    
    
    
    578,262
    
    
    
    632,097Embezzlement recovery
    
    
    (37,527
    )
    
    
    
    
    
    
    (290,840
    )
    
    
    Other income, net
    
    
    (28,749
    )
    
    
    715
    
    
    
    (107,969
    )
    
    
    (6,154
    )Total other expense
    
    
    273,056
    
    
    
    295,798
    
    
    
    179,453
    
    
    
    625,943(Loss) income before income tax expense
    
    
    (1,766,511
    )
    
    
    446,800
    
    
    
    (2,919,676
    )
    
    
    1,215,422Income tax (benefit) expense :Current
    
    
    (1,227,623
    )
    
    
    224,522
    
    
    
    (1,221,373
    )
    
    
    540,245Deferred
    
    
    670,130
    
    
    
    (39,962
    )
    
    
    270,752
    
    
    
    (69,279
    )Total income tax (benefit) expense
    
    
    (557,493
    )
    
    
    184,560
    
    
    
    (950,621
    )
    
    
    470,966Net (loss) income
    
    $
    (1,209,018
    )
    
    $
    262,240
    
    
    
    (1,969,055
    )
    
    $
    744,456Net (loss) income per share (basic and diluted)
    
    $
    (0.23
    )
    
    $
    0.05
    
    
    $
    (0.37
    )
    
    $
    0.14Weighted average shares outstanding
    
    
    5,278,780
    
    
    
    5,278,780
    
    
    
    5,278,780
    
    
    
    5,278,780
 The accompanying notes are an integral part of the condensed consolidated financial statements. 3




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IMPRESO, INC. AND SUBSIDIARIES 
 INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months EndedFebruary 28,
    
    
    February 29,2005
    
    
    2004Cash Flows From Operating Activities:Net (loss) income
    
    $
    (1,969,054
    )
    
    $
    744,456Adjustments to reconcile net (loss) income to net
cash (used in ) provided by operating activities-Depreciation and amortization
    
    
    723,631
    
    
    
    726,351(Decrease) increase in Provision for Losses of Receivables
    
    
    (102,262
    )
    
    
    (138,674
    )Decrease in Provision for Losses of Inventory
    
    
    (987
    )
    
    
    (11,438
    )Gain on sale of property, plant and equipment
    
    
    (101,909
    )
    
    
    Decrease (Increase) in Deferred income taxes
    
    
    270,752
    
    
    
    (138,557
    )Decrease in trade accounts receivable
    
    
    2,896,252
    
    
    
    634,648Increase in receivable from IRS
    
    
    (1,233,373
    )
    
    
    (Increase) Decrease in inventory
    
    
    (3,215,843
    )
    
    
    6,900,392Increase in prepaid expenses and other
    
    
    (33,812
    )
    
    
    (157,667
    )(Decrease) Increase in accounts payable
    
    
    (1,497,907
    )
    
    
    535,262Increase in accrued liabilities
    
    
    267,746
    
    
    
    514,732Net cash (used in) provided by operating activities
    
    
    (3,996,766
    )
    
    
    9,609,505Cash Flows From Investing Activities:Additions to property, plant and equipment
    
    
    (731,276
    )
    
    
    (94,973
    )Proceeds from sale of property, plant and equipment
    
    
    41,000
    
    
    
    3,328Net cash used in investing activities
    
    
    (690,276
    )
    
    
    (91,645
    )Cash Flows From Financing Activities:Net borrowings (repayments) on line of credit
    
    
    3,828,085
    
    
    
    (8,575,751
    )Principal payments on prepetition debt
    
    
    (4,180
    )
    
    
    (4,014
    )Principal borrowings (payments) on post-petition debt
    
    
    1,484,636
    
    
    
    (439,705
    )Net cash provided by (used in) financing activities
    
    
    5,308,541
    
    
    
    (9,019,470
    )Net Increase in cash and cash equivalents
    
    
    621,499
    
    
    
    498,389Cash and cash equivalents, beginning of period
    
    
    173,313
    
    
    
    95,129Cash and cash equivalents, end of period
    
    $
    794,812
    
    
    $
    593,518
 The accompanying notes are an integral part of the condensed consolidated financial statements. 4




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IMPRESO, INC. AND SUBSIDIARIES 
 NOTES TO INTERIM CONDENSED 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, 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. 2.INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the unaudited Interim Condensed 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, 2005, and its results of
operations for the three and six months ended February 28, 2005 and February 29, 2004. Results of
the Companys operations for the interim period ended February 28, 2005, 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 Condensed 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 Form 10-K), for the year ended August 31,
2004 (Fiscal 2004). Accounting policies used in the preparation of the unaudited Interim
Condensed 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.NEW ACCOUNTING PRONOUNCEMENTS 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. 5




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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
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. In November 2004, FASB issued SFAS No, 151 Inventory Costs, an Amendment of ARB No.43 Chapter 4
(FAS 151). FAS 151 requires that items such as idle facility expense, excessive spoilage, double
freight, and rehandling be recognized as current-period charges rather than being included in
inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. FAS
151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005,
The Company will adopt this standard beginning the first quarter of fiscal year 2006 and does not
believe the adoption will have a material impact on its financial statements as such costs have
historically been expensed as incurred. In December 2004, the Financial Account Standards Board (FASB) issued SFAS No, 153, Exchanges of
Non-monetary Assets  an amendment of APB Opinion No. 29 which addresses the measurement of
exchanges of non-monetary assets and eliminates the exception from fair value accounting for
non-monetary exchanges of similar productive assets and replaces it with an exception for exchanges
that do not have commercial substance. SFAS No. 153 specifies that a non-monetary exchange has
commercial substance if the future cash flows of an entity are expected to change significantly as
a result of the exchange. This statement is effective for the Company 6




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beginning the first quarter
of fiscal year 2006 and is not expected to have a significant impact on the
Companys financial statements. In December 2004, FASB issued SFAS No., 123 (Revised 2004) Share-Based Payment: an Amendment of
FASB Statements No. 123 and 95 (FAS l23R).. FAS l23R sets accounting requirements for
share-based compensation to employees, requires companies to recognize in the income statement
the grant-date fair value of stock options and other equity-based compensation issued to employees
and disallows the use of the intrinsic value method of accounting for stock compensation.. FAS l23R
is applicable for all interim and fiscal periods beginning after June 15, 2005. This statement is
effective for the Company beginning the first quarter of fiscal year 2006 and is not expected to
have a significant impact on its financial statements. 4.RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. 5.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: February 28, 2005
    
    
    August 31, 2004Finished goods
    
    $
    12,188,912
    
    
    $
    11,920,405Raw materials
    
    
    12,723,721
    
    
    
    9,866,736Supplies
    
    
    1,165,779
    
    
    
    1,047,748Work-in-process
    
    
    89,716
    
    
    
    117,396Allowance for obsolete inventory
    
    
    (307,740
    )
    
    
    (308,727
    )Total
    
    $
    25,860,388
    
    
    $
    22,643,558
 6.ACCOUNTING FOR LONG-LIVED ASSETS In March 2004, the Company began a lease with an unrelated party for a 414,000 square foot
warehouse and manufacturing facility in Chambersburg, Pennsylvania to consolidate east coast
operations. The Company exited and no longer utilizes its buildings located in Kearneysville, West
Virginia and Greencastle, Pennsylvania, and is attempting to locate buyers for these facilities. For the three and six month periods ended February 28, 2005, the Company ceased depreciating the
buildings and building improvements and has reclassified the net book value of the land, building
and building improvements in the amount of $2.1 million to assets held for sale. The Company
believes both properties will be sold within the next twelve months. The Company has determined the plan of sale criteria in the statement of Financial Accounting 7




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Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets has been met.
Accordingly, the assets held for sale are classified as current and are carried at the lower of
their carrying or fair value, less costs to sell. There were no write downs of inventory as a
result of this valuation. 7.LONG-TERM DEBT AND LINE OF CREDIT: February 28,
    
    
    August 31,2005
    
    
    2004The following is a summary of long-term debt and line of credit:Line 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 (5.25% and 4.25%,
respectively, as of February 28, 2005 and August 31, 2004).
    
    $
    10,679,564
    
    
    $
    6,851,479Note 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.
    
    
    203,257
    
    
    
    222,039Note 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.
    
    
    555,186
    
    
    
    599,536Note 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.
    
    
    163,708
    
    
    
    175,978Notes payable to various commercial financial corporations,
secured by equipment, interest rates ranging from 0 % to 10.5
%, maturing at various dates from May 2005 through July 2008.
    
    
    140,907
    
    
    
    140,069Notes 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.
    
    
    1,892,865
    
    
    
    1,944,381Acquisition note payable, unsecured, payable in quarterly
installments of $15,000 (including interest at 8%), maturing
April 2006. (See Form 10-K, Second Paragraph, Footnote 8)
    
    
    225,000
    
    
    
    225,000Acquisition note payable, secured by equipment, payable in
monthly installments of $16,024, no interest, matured May 2003.
(See Form 10-K, Second Paragraph, Footnote 8)
    
    
    352,145
    
    
    
    352,145
 8




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February 28,
    
    
    August 31,2005
    
    
    2004Note 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). On September 22, 2004,
this note was combined with a construction note. The note
executed September 22, 2004, relinquished the personal
guarantee, is payable in monthly installments of $12,377.85, including interest at prime plus 1.125% with a cap of 7.5%
(6.375% at February 28, 2005) maturing September 2009.
    
    
    4,406,515
    
    
    
    3,085,043Note 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, (5.51% at February 28, 2005 and 4.5% at
August 31, 2004), maturing February 2009.
    
    
    875,000
    
    
    
    982,143Acquisition notes payable, unsecured, payable in monthly
installments of $16,666, maturing February 2007.
    
    
    387,810
    
    
    
    476,905Construction 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.
    
    
    -0-
    
    
    
    1,375,059Financing lease payable to a commercial financial corporation,
secured by equipment, payable in monthly installments of
$28,320, including interest at 8.51%, maturing October 2011.
    
    
    1,860,541
    
    
    
    -0-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.
    
    
    224,893
    
    
    
    229,073Total
    
    
    21,967,391
    
    
    
    16,658,850Less Current Maturities
    
    
    (12,030,881
    )
    
    
    (8,266,933
    )Long-Term Debt
    
    $
    9,936,510
    
    
    $
    8,391,917
 Prepetition amount listed above represents the renegotiated amounts and terms under the 1993 plan
of reorganization. 9




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In December 2004, TST amended its revolving line of credit to increase the line from $10 million to
$15 million. The amended revolving credit line is limited to the lesser of $15 million or a
percentage of eligible trade accounts receivable and inventories, as defined. The remaining
availability under the revolving credit line was $3.1 million as of February 28, 2005. 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 February
28, 2005, the Company was in compliance with all covenants. 8.SUPPLEMENTAL CASH FLOW INFORMATION Three Months ended
    
    

February 28, 2005
    
    

February 29, 2004Cash paid during the period for:Interest
    
    
    339,332
    
    
    $
    295,083Income taxes
    
    
    -0-
    
    
    $
    499,300
 Six Months ended
    
    

February 28, 2005
    
    

February 29, 2004Cash paid during the period for:Interest
    
    
    578,262
    
    
    $
    632,097Income taxes
    
    
    95,000
    
    
    $
    507,569
 During the three and six month periods ended February 28, 2005, the Company reclassified
$2,141,289 of property, plant and equipment to assets held for sale, and received payment applied
directly to the line of credit of $1,625,633 relating to the financing of various water bottling
equipment. 9.STOCK OPTIONS 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. 10




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Three Months Ended
    
    
    February 28,
    
    
    February 292005
    
    
    
    2004Pro forma impact of fair value
methodReported net (loss) income
    
    
    (1,209,018
    )
    
    
    262,240Less: fair value impact of
employee stock options
    
    
    
    
    
    
    1,200Pro Forma net (loss) income
    
    
    (1,209,018
    )
    
    
    261,040Earnings per common shareBasic-as reported
    
    $
    (0.23
    )
    
    $
    0.05Diluted-as reported
    
    $
    (0.23
    )
    
    $
    0.05Basic-pro forma
    
    $
    (0.23
    )
    
    $
    0.05Diluted-pro forma
    
    $
    (0.23
    )
    
    $
    0.05Weighted average Black-Scholes
fair value assumptionsRisk free interest rate
    
    

3.73
    %
    
    
    3.27
    %Expected life
    
    
    5 years
    
    
    5 yearsExpected volatility
    
    

58
    %
    
    
    57
    %Expected dividend yield
    
    

-0-
    
    
    
    -0-
 Six Months Ended
    
    
    February 28,
    
    
    February 292005
    
    
    
    2004Pro forma impact of fair value
methodReported net (loss) income
    
    
    (1,969,055
    )
    
    
    744,456Less: fair value impact of
employee stock options
    
    
    1,000
    
    
    
    2,000Pro Forma net (loss) income
    
    
    (1,970,055
    )
    
    
    742,456Earnings per common shareBasic-as reported
    
    $
    (0.37
    )
    
    $
    0.14Diluted-as reported
    
    $
    (0.37
    )
    
    $
    0.14Basic-pro forma
    
    $
    (0.37
    )
    
    $
    0.14Diluted-pro forma
    
    $
    (0.37
    )
    
    $
    0.14Weighted average Black-Scholes
fair value assumptionsRisk free interest rate
    
    

3.73
    %
    
    
    3.27
    %Expected life
    
    
    5 years
    
    
    5 yearsExpected volatility
    
    

58
    %
    
    
    57
    %Expected dividend yield
    
    

-0-
    
    
    
    -0-
 11




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10.LEGAL MATTERS 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 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 has been moved to September 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. 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. Arbitration, set to begin in March 2005, has
been suspended pending the Plaintiffs bankruptcy judges approval of a settlement reached by the
parties. 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 insurer at the time the loss was discovered executed a partial
settlement 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 the balance
of up to $500,000 of the Companys claim as filed with the Insurer. The fraudulently diverted
funds were recorded in the Registrants consolidated financial statements for fiscal years ended
August 31, 2001, 2002 and 2003, as salary expense. Partial reimbursement from the insurance company
and the embezzler is recorded as a separate line item under other income, embezzlement recovery, in
the Form 10-Q, for the three month and six month periods ended February 28, 2005. 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 of 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. 12




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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. On February 28, 2005, 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. The defendant filed an answer and the parties are conducting discovery. 11.SUBSEQUENT EVENTS As a result of recent operating results and at the direction of the Board, on March 10, 2005 we
engaged Santoro & Co., LLC, to independently test and validate whether managements planned
restructuring actions are being appropriately implemented, and that the financial impact has been
reasonably stated and is properly reflected in the budget. The consultants will also identify
additional cost savings and revenue enhancing actions and develop a reporting model for monitoring
the execution and financial impact of the restructuring actions. On March 22, 2005, a shareholder made demand requesting to inspect
our Directors and Officers Liability Insurance Policies pursuant to Section 220 of Delaware General
Corporation Law for the purposes of investigating the Companys performance. We responded within
the prescribed period that the demand did not comply with the statutory requirements. On April 7,
2005, the shareholder made demand again. We responded again within the prescribed period that the
demand did not comply with the statutory requirements. An employee of the shareholder was appointed
to our Board of Directors on October 23, 2002 and resigned on April 22, 2004. The individual was a
member of the Audit Committee and was our Financial Expert on the Audit Committee during his
tenure. During his tenure this Director voted in favor of all resolutions presented to the Board
and Audit Committee. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations CRITICAL ACCOUNTING POLICIES The accounting policies described below are those the Company considers critical in preparing its
consolidated financial statements. These policies require the application of significant 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 accrues for losses on accounts receivable at the rate of one half of a percent per
month of sales and adjusts the accrual quarterly based upon customers 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 13




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We record sales of hard copy imaging and bottled water products when products are shipped to
customers. We assess the likelihood of collecting credit accounts prior to revenue recognition and



are reasonably assured a majority of the sales are collectible due to our credit policies and
collection methods. The Company reserves 1/2% of monthly sales as a bad debt reserve. This
percentage is based upon historical trends. Consistent monitoring of the accounts receivable allows
us to determine if an accounts collection is becoming compromised. We reinvestigate delinquent
customers to see if there may be a slow pay trend or economic condition affecting this customer.
Subsequent to reinvestigation, we evaluate our bad debt reserve and if the information reflects
additional exposure, we increase our reserve accordingly. 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. We record reductions in revenue when products are returned. Returns and allowances are monitored
based on a historical percentage of sales. Our return policy is to accept product back for full
credit if the product was shipped in error or for product that fails to meet acceptable quality
standards. This credit will include the cost of the product and all associated shipping charges.
Returns of this nature must comply with the following: return authorization is valid for 30 days
only; claims must be submitted to customer service within one week of product being delivered; We
will not accept collect shipments on product being returned; and samples of defective product must
be sent to the Customer Service Returns Coordinator for evaluation and disposition of product. We will also accept hard copy imaging product back for credit subject to a restocking charge (20%
on Impreso brand; 30% on IBM brand) for product that is in re-saleable condition, returned within 4
months of original purchase and has not been discontinued from the product line. Return freight
costs are the responsibility of the customer. Original invoice charges such as minimum handling
charge, UPS charge, outbound freight, etc. will not be reimbursed as part of the credit adjustment.
Products with a shorter shelf-life, such as carbonless paper and thermal products must be returned
within 3 months of original purchase. Once a return has been authorized and the product returned to our warehouse or plant, the customer
is issued a credit, according to the type of return, against their account. This credit is then
booked to the returns and allowances account and a reduction in revenue is taken. Rebates, Advertising Allowances, and Independent Sales Commissions The Company accrues for rebates and advertising allowances paid to certain customers; and
commissions paid to independent sales representatives, based on specific contractual agreements.
These accruals are calculated based upon the volume of purchases by customers and sales by 14




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independent sales representatives, which are adjusted monthly to reflect increases and decreases. For the three months ended February 29, 2004 and February 28, 2005, we recorded customer rebates
in the amount of $998,000 and $847,000, respectively. For the six months ended February 29, 2004
and February 28, 2005, we recorded customer rebates in the amount of $2.4 million and $2.3 million,
respectively. The customer rebates are recorded as a decrease to sales. For the three months ended February 29, 2004 and February 28, 2005, we recorded advertising
allowances in the amount of $288,000 and $194,000, respectively. For the six months ended February
29, 2004 and February 28, 2005, we recorded advertising allowances in the amount of $559,000 and
$524,000, respectively. The advertising allowances are recorded as an SG&A expense. For the three months ended February 29, 2004 and February 28, 2005, we recorded independent sales
commissions in the amount of $72,000 and $50,000, respectively. For the six months ended February
29, 2004 and February 28, 2005, we recorded independent sales commissions in the amount of $139,000
and $130,000, respectively. The independent sales commissions are recorded in cost of goods sold. 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 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 Interim Periods Ended February 28, 2005 and February 29, 2004. As a result of the decrease in volume of purchases by key customers in January 2005, representing
sales of approximately 29%, or $30 million of Fiscal 2004 revenue, the Company began a plan to
downsize its operations and reduce costs to return to profitability. The key elements of the plan
are better utilization of space created by reduced operations; leasing available space; liquidating
buildings that are vacant as a result of east coast consolidations; eliminating or reducing current
work force, payroll, and employee benefits; reducing inventories by $5 to $7 million; raise
finished goods pricing as necessary to recoup raw material price increases; and replace lost sales
as quickly as possible. Net SalesNet sales decreased from $25.8 million in the three months ended February 29, 2004 to
$18.6 million in the three months ended February 28, 2005 (Second Quarter 2005), a decrease of
$7.1 million or 27.7%. Net sales decreased from $52.5 million in the six months ended February
29, 2004, to $38.6 million in the six months ended February 28, 2005, a decrease of $13.9 million
or 26.5%. Net sales decreased in the three and six months period ended February 28, 2005, as 15




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##### Table of Contents



compared to the corresponding periods of the prior year, as a result of the decrease in volume of
purchases by key customers. Gross Profit- Gross profit decreased from $3 million in the three months ended February 29, 2004,
to $556,000 in the Second Quarter 2005, a decrease of 81.5%. Gross profit decreased from $6.4
million in the six months ended February 29, 2004, to $1.5 million in the six months ended February
28, 2005, a decrease of 76%. Gross profit margin for the Second Quarter decreased to 3% as compared
to 11.7 % for the three month period ended February 29, 2004. Gross profit margin for the six month
period ended February 28, 2005, decreased to 4% as compared to 12.2% for the six month period ended
February 29, 2004. The decreases in gross profit and gross profit margin for the three and six
month periods ended February 28, 2005 and February 29, 2004, resulted from higher raw material
costs that we were unable to fully pass through to our customers, and the decrease of purchases by
key customers. Selling, General, and Administrative ExpensesSG&A expenses decreased from $ 2.3 million in the
three months ended February 29, 2004 to $2.1 in the Second Quarter 2005. SG&A expenses decreased
from $ 4.5 million in the six months ended February 29, 2004 to $4.4 million in the six months
ended February 28, 2005. This decrease was primarily the result of a reduction in workforce on
January 14, 2005. SG&A expenses as a percentage of net sales increased from 8.8 % in the three
months ended February 29, 2004, to 11.2 % in the Second Quarter 2005. SG&A expenses as a percentage
of net sales increased from 8.7 % in the six months ended February 29, 2004, to 11.3 % in the six
months ended February 28, 2005. The increase in SG&A as a percentage of sales for three and six
month periods ended February 28, 2005, is due to the decrease in net sales. Interest ExpenseInterest expense increased from $ 295,000 in the three months ended February
29, 2004, to $ 339,000, or 15 %, in Second Quarter 2005. Interest expense decreased from $632,000
in the six months ended February 29, 2004, to $578,000, or 8.5 % in the six months ended February
28, 2005. The increase of Interest Expense by 15 % in the Second Quarter 2005 as compared to the
three months ended February 29, 2004 resulted from increased borrowings under our line of credit
and increased interest rates on floating interest debt instruments. The decrease by 8.5% in the six
months ended February 28, 2005, as compared to the corresponding period of the prior year is due to
the sale of our California properties. Income Taxes- Income tax expense decreased from $ 185,000 for the three months ended February 29,
2004, to a tax benefit of $557,000 in Second Quarter 2005. Income tax expense decreased from
$471,000 for the six months ended February 29, 2004, to a tax benefit of $ 951,000 in the six
months ended February 28, 2005. The decrease in income tax expense for Second Quarter 2005, as
compared to the corresponding period of the prior year is due to lower net sales without a
corresponding reduction in overhead which resulted in net loss of income. On December 1, 2004 TST and IBM terminated the Trademark Licensee Agreement. Net sales and revenue
attributable to IBM branded products will gradually decline until the agreement is concluded in
August 2005. Substantially all of the products we sell under the IBM brand are also sold under the
Impreso brand. We have initiated a condensed marketing program to convert our customers who were
purchasing our IBM branded products to our proprietary brand, Impreso. 16




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##### Table of Contents



Therefore, we believe that
any quantity of lost or lower margin sales should not materially impact our liquidity, capital
resources and results of operations due to this event. The cessation of sales of continuous business forms to a significant customer has had a material
impact on our net sales and revenues, and adversely affected our liquidity, capital resources and
results of operations. We are currently working to replace this business with other volume
purchasers of this product. We have also been successful in introducing other product lines to this
customer and will continue to try and recapture the sale of continuous business forms to this
company. Management believes that we can increase net sales of all of our products to replace the
volume of continuous forms sold to this one customer within two years of the loss. The decline in continuous feed business forms has not yet materially impacted our net sales and
revenues. Management has compensated for the maturity and decline of this hard copy imaging
category by branching into other hard copy imaging products such as cut sheet, value added, and add
roll products to replace the lost revenue from the sales of continuous feed products. The most
recent addition to our product line, a complimentary item to hard copy imaging products for office
products distributors, is bottled spring water which started generating sales in the first part of
fiscal 2005. Bottled spring water did not utilize our existing equipment and during the start up
phase necessitated the acquisition of new facilities and equipment, thereby depleting capital
resources and reducing liquidity. This, combined with other events, collectively adversely impacted
operations. However, the long term investment in this product category will maximize the efficiency
of our selling force, administration, and distribution infrastructure due to opposite seasonal
cycles of consumption. Whereas in the summer months, hard copy imaging products may slow, the
bottled water business is at its peak. Liquidity and Capital Resources We define liquidity as the ability to generate adequate funds to meet our operating and capital
needs. Our cash requirements are primarily for working capital, capital expenditures, and interest
and principal payments on our debt and capital lease obligations. Historically, these needs for
cash have been met by cash flows from operations and borrowings under our revolving credit
facility. Effective December 14, 2004, TST amended its loan agreement with a commercial financial corporation
to increase its available borrowings under its line of credit. The amended agreement provides for a
$15 million line of credit and an inventory sub-limit of $12 million. The amended loan, which
matures November 2005, is secured by, among other things, inventory, trade receivables, and
equipment. Available borrowings under this line of credit, which accrued interest at prime plus the applicable
prime rate margin (5.25 % and 4.25%, respectively, at February 28, 2005), are based upon specified
percentages of eligible accounts receivable and inventories. As of February 28, 2005, there was a
$3.1 million borrowing capacity remaining under the $15 million revolving line of credit, adequate
available capital to operate our business. Borrowings under our line of credit increased from $6.9 million at August 31, 2004, to $10.7 17




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##### Table of Contents



million at February 28, 2005, an increase of $3.8 million, or 56%. The increased borrowing
primarily resulted from an increase in inventory and start up costs associated with our new bottled
spring water operations. Working capital increased to $14.5 million as of February 28, 2005, from $12.7 million at August
31, 2004. This represented an increase of 14.2%. This increase is primarily attributable to the
increase in our inventories. Net Cash Provided by/Used in Operating, Investing, and Financing Activities Our operating activities used $4 million of cash in the six month period ended February 28, 2005
and provided $9.6 million in cash in the six month period ended February 29, 2004. Operating cash
flows for the six month period ended February 28, 2005 was used primarily for purchases of
inventory. Cash used in investing activities was $690,000 for the six month period ended February 28, 2005.
Cash used in investing activities was $92,000 for the six month period ended February 29, 2004.
Cash used in investing activities for the six month period ended February 28, 2005, was due to
expenditures for property, plant and equipment, offset by proceeds from asset dispositions. Cash provided by financing activities was $5.3 million for the six month period ended February 28,
2005. Cash used by financing activities was $9 million for the six month period ended February 29,
2004. Cash provided by financing activities for the six month period ended February 28, 2005, was
due to increased borrowings on our line of credit and financed expenditures associated with our new
bottled spring water operations. Capital Expenditures During the six month period ended February 28, 2005, we incurred capital expenditures of $600,000,
consisting of equipment purchases associated with our new bottled spring water operations. An
additional $ 131,000 was related to equipment purchases for our hard copy imaging operations.
During the six month period ended February 29, 2004, we spent $95,000 on capital expenditures on
building improvements of our California facility to make it ready for sale. We plan to make total
capital expenditures of approximately$1.2 million during fiscal 2005. Future Liquidity The cessation of sales of continuous business forms to a significant customer, which increased our
inventory due to long lead times in purchasing raw materials and decreased our receivables; the
issuance of debt to finance our expansion in Itasca, Il,; the occupation of a leased facility in
Chambersburg, PA, which resulted in two empty mortgaged buildings since July 2004, and start up
operations at our spring water bottling facility, adversely impacted our liquidity and capital
resources in the six month period ended February 28, 2005. The inventory is being converted to
cash, and management anticipates a new customer, who has been adding new distribution centers for
receipt of our products monthly, will equal or exceed the lost significant customers purchases.
Although management anticipates the sale of the two empty buildings by July 2005, no contracts 18




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##### Table of Contents



have
been offered. The water bottling facility is operating and we are selling water product. Absent
unforeseen circumstances these known trends and uncertainties indicates that our performance should
start improving in our fiscal 2005 year. Based upon current levels of operations and planned improvements in our operating performance,
management believes that cash flow from operations together with liquidation of our building and
inventory, and available borrowings under our revolving line of credit will be adequate to meet our
anticipated requirements for working capital and debt service through the end of fiscal 2005. Our current level of indebtedness affects our ability to obtain additional financing or react
quickly to changes in our industry. We will continue to assess our liquidity position and potential
sources of supplemental liquidity in light of our operating performance and other relevant
circumstances. Should we determine, at anytime, that it is necessary to seek additional short-term
liquidity, we will evaluate our alternatives and take appropriate steps to obtain sufficient
additional funds. There can be no assurance that any additional financing will be available if
needed, or, if available, will be on acceptable terms. We have not identified any sources of long
term liquidity. As of February 28, 2005, 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. 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 July 2004, our inventory began increasing as
a result of decreasing sales and our continued receipt of raw materials due to order timeframe
requirements. In January 2005, Management implemented an inventory reduction program. Our
inventories decreased from $28.6 million as of November 31, 2004, the end of our first quarter for
Fiscal 2005, to $25.9 million as of February 28, 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. In October 2004, the cost of raw materials increased and we were not able to pass this increase on
to all of our customers, this resulted in an erosion of profit margins on certain accounts. The
mills currently supplying us with a majority of our raw materials announced an increase in April
2005, which took effect. We are currently issuing updated pricing schedules and intend to fully
pass on to our customers this recent increase. 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 19




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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 Since our inception, the largest product category produced by the Company was continuous feed
business forms. Competitors in the marketplace have aggressively solicited our customers. As a
result of the loss of continuous forms business from key customers, in January 2005 the Company
downsized its operations. We believe we will be able to replace the majority of this lost business
with other customers. Management believes that the market for continuous forms will continue to
decline in 2005 through 2006, but then may stabilize. Recently, Point of Sales Rolls increased to
become the largest segment of our business. This is a significant milestone of our transition into
growth product categories of hard copy imaging products. Although 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. There can be no assurance that purchases by
these customers will remain at significant levels. TST may in the future be dependent on these or
other significant customers. The loss of any other significant customer could materially adversely
affect our financial position, results of operations and cash flows. 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. We believe our target
market is private label. The private label water market grew approximately 29% in 2004. 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. Forward-Looking Statements 20




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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 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 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 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 February 28, 2005. The fair market value of
long-term variable interest rate debt is subject to interest rate risk. Our exposure to interest
risks is not material. 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, 2005, there
was no material exposure to our financial position or results of operations. 
 Item 4. Controls and Procedures 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 amendments to its 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. No material changes to controls have 21




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occurred in the current quarter. 
 PART II: OTHER INFORMATION 
 Item 1. Legal Proceedings. See note 10 to condensed consolidated financial statements contained in Part I, Item 1 of this
report, which is incorporated by reference in this Part II, as its Item 1. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None 
 Item 3. Defaults upon Senior Securities. None 
 Item 4. Submission of Matters to a Vote of Security Holders. None 
 Item 5. Other Information. None 
 Item 6. Exhibits Exhibits to Part 1. Exhibit No.
    
    Description of Exhibits31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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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 19, 2005 Impreso, Inc.(Registrant)/s/ Marshall D. SorokwaszMarshall D. Sorokwasz
Chairman of the Board, Chief
Executive Officer, President,
and Director/s/ Susan M. AtkinsSusan M. Atkins
Chief Financial Officer
and Vice President
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Exhibits Exhibit No.
    
    Description of Exhibits31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 24