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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 May 31, 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
(State or other jurisdiction of
incorporation or organization)
    
    75-2849585
(I.R.S. Employer
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 July 14, 2005$0.01 Par Value
    
    5,278,780




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IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
May 31, 2005 INDEX Page NumberPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements:Interim Condensed Consolidated Balance Sheets as of May 31, 2005
(Unaudited) and August 31, 2004
    
    
    1Interim Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended May 31, 2005 and May 31, 2004
(Unaudited)
    
    
    3Interim Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended May 31, 2005 and May 31, 2004
(Unaudited)
    
    
    4Notes to Interim Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    19Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3.
    
    Defaults upon Senior Securities
    
    
    20Item 4.
    
    Submission of Matters to a vote of Security Holders
    
    
    20Item 5.
    
    Other Information
    
    
    20Item 6.
    
    Exhibits
    
    
    20SIGNATURES
    
    
    21INDEX TO EXHIBITS
    
    
    22Certification 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
(Unaudited) May 31,
    
    
    August 31,2005
    
    
    2004Current assets:Cash and cash equivalents
    
    $
    628,506
    
    
    $
    173,313Trade accounts receivable, net of allowance for doubtful accounts
of $1,065,398 at May 31, 2005 and $1,130,315 as of August 31, 2004
    
    
    7,733,356
    
    
    
    12,666,433Refundable income taxes
    
    
    1,746,880
    
    
    
    Inventories, net of reserves
    
    
    20,957,513
    
    
    
    22,643,558Prepaid expenses and other
    
    
    797,695
    
    
    
    330,039Assets held for sale
    
    
    2,141,289
    
    
    
    Deferred income tax assets
    
    
    683,312
    
    
    
    736,810Total current assets
    
    
    34,688,551
    
    
    
    36,550,153Property, plant and equipment, at cost
    
    
    27,164,340
    
    
    
    29,417,303Less-Accumulated depreciation
    
    
    (14,413,473
    )
    
    
    (14,295,714
    )Net property, plant and equipment
    
    
    12,750,867
    
    
    
    15,121,589Noncurrent assetsOther assets
    
    
    75,354
    
    
    
    81,778Deferred income tax assets
    
    
    317,948
    
    
    
    318,718Total noncurrent assets
    
    
    393,302
    
    
    
    400,496Total assets
    
    $
    47,832,720
    
    
    $
    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) May 31,
    
    
    August 31,2005
    
    
    2004Current liabilities:Accounts payable
    
    $
    9,336,862
    
    
    $
    12,711,758Accrued liabilities
    
    
    716,076
    
    
    
    987,921Accrued commissions
    
    
    1,598,707
    
    
    
    1,863,698Current maturities of long-term debt
    
    
    1,230,626
    
    
    
    1,407,070Line of credit
    
    
    8,246,504
    
    
    
    6,851,479Current maturities of prepetition debt
    
    
    8,609
    
    
    
    8,384Total current liabilities
    
    
    21,137,384
    
    
    
    23,830,310Deferred income tax liability
    
    
    1,348,352
    
    
    
    998,730Deferred gain
    
    
    654,512
    
    
    
    796,796Long-term debt, net of current maturities
    
    
    8,968,124
    
    
    
    8,171,228Long-term portion of prepetition debt, net of current maturities
    
    
    212,565
    
    
    
    220,689Total liabilities
    
    
    32,320,937
    
    
    
    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; 5,292,780 issued and 5,278,780 outstanding
    
    
    52,928
    
    
    
    52,928Treasury stock (14,000 shares, at cost)
    
    
    (38,892
    )
    
    
    (38,892
    )Additional paid-in capital
    
    
    6,353,656
    
    
    
    6,353,656Retained earnings
    
    
    9,144,091
    
    
    
    11,686,793Total stockholders equity
    
    
    15,511,783
    
    
    
    18,054,485Total liabilities and stockholders equity
    
    $
    47,832,720
    
    
    $
    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 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31
    
    
    May 31,
    
    
    May 312005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    19,829,734
    
    
    $
    25,475,573
    
    
    $
    58,435,505
    
    
    $
    77,885,681Cost of sales
    
    
    18,733,138
    
    
    
    21,959,557
    
    
    
    55,782,864
    
    
    
    67,362,876Gross profit
    
    
    1,096,596
    
    
    
    3,516,016
    
    
    
    2,652,641
    
    
    $
    10,522,805Gain on sale of assets
    
    
    (42,685
    )
    
    
    (14,229
    )
    
    
    (142,285
    )
    
    
    (14,229
    )Selling, general and administrative expense
    
    
    2,220,005
    
    
    
    2,626,119
    
    
    
    6,728,183
    
    
    
    7,791,543Operating (loss) income
    
    
    (1,080,724
    )
    
    
    904,126
    
    
    
    (3,933,257
    )
    
    
    2,745,491Other (income) expenses:Interest expense
    
    
    322,641
    
    
    
    243,988
    
    
    
    900,903
    
    
    
    876,085Embezzlement recovery
    
    
    
    
    
    
    
    
    
    
    (290,840
    )
    
    
    Extinguishment of debt
    
    
    (489,645
    )
    
    
    
    
    
    
    (489,645
    )
    
    
    Other income, net
    
    
    (65,384
    )
    
    
    105,523
    
    
    
    (285,662
    )
    
    
    99,369(Loss) income before income tax expense
    
    
    (848,336
    )
    
    
    554,615
    
    
    
    (3,768,013
    )
    
    
    1,770,037Income tax (benefit) expense:Current
    
    
    (407,828
    )
    
    
    324,915
    
    
    
    (1,629,201
    )
    
    
    865,160Deferred
    
    
    133,138
    
    
    
    (118,351
    )
    
    
    403,890
    
    
    
    (187,630
    )Total income tax (benefit) expense
    
    
    (274,690
    )
    
    
    206,564
    
    
    
    (1,225,311
    )
    
    
    677,530Net (loss) income
    
    
    (573,646
    )
    
    
    348,051
    
    
    
    (2,542,702
    )
    
    
    1,092,507(Net loss)
income per common share (basic and diluted)
    
    $
    (0.11
    )
    
    $
    0.07
    
    
    $
    (0.48
    )
    
    $
    0.21Weighted
average shares outstanding (basic and diluted)
    
    
    5,278,780
    
    
    
    5,278,780
    
    
    
    5,278,780
    
    
    
    5,278,780
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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IMPRESO, INC. AND SUBSIDIARIES 
 INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004Cash Flows From Operating ActivitiesNet (loss) income
    
    $
    (2,542,702
    )
    
    $
    1,092,507Adjustments to reconcile net (loss) income to net cash
used in operating activities-Depreciation and amortization
    
    
    1,116,483
    
    
    
    1,072,416(Decrease) increase in Provision for Losses of Receivables
    
    
    (64,917
    )
    
    
    Decrease in Provision for Losses of Inventory
    
    
    99,906
    
    
    
    Extinguishment of Debt
    
    
    489,645
    
    
    
    Gain on sale of property, plant and equipment
    
    
    (142,284
    )
    
    
    Deferred income tax (benefit) expense
    
    
    403,890
    
    
    
    (187,630
    )Decrease in trade accounts recivable
    
    
    4,997,994
    
    
    
    169,724Increase in refundable income taxes
    
    
    (1,746,880
    )
    
    
    Decrease in inventories
    
    
    1,586,139
    
    
    
    7,462,330Increase in prepaid expenses and other
    
    
    (467,656
    )
    
    
    (625,301
    )(Increase) decrease in non current assets
    
    
    6,424
    
    
    
    (780,110
    )(Decrease) in accounts payable
    
    
    (3,374,896
    )
    
    
    (923,936
    )Increase (Decrease) in accrued liabilities
    
    
    (536,836
    )
    
    
    1,283,221Net cash (used) provided by operating activities
    
    
    (175,690
    )
    
    
    8,563,221Cash Flows From Investing Activities:Additions to property, plant, and equipment
    
    
    (927,195
    )
    
    
    (1,258,945
    )Proceeds from sale of property, plant & equipment
    
    
    40,145
    
    
    
    2,892,888Net Cash (used in) provided by investing activities
    
    
    (887,050
    )
    
    
    1,633,943Cash Flows From Financing Activities:Net borrowings (payments) on line of credit
    
    
    1,395,025
    
    
    
    (8,816,523
    )Payments on prepetition debt
    
    
    (7,899
    )
    
    
    (6,103
    )Net additions (payments) on postpetition debt, net
    
    
    130,807
    
    
    
    (1,163,705
    )Net cash provided by (used in) financing activities
    
    
    1,517,933
    
    
    
    (9,986,331
    )Net increase in cash and cash equivalents
    
    
    455,193
    
    
    
    210,833Cash and cash equivalents, beginning of period
    
    
    173,313
    
    
    
    95,129Cash and cash equivalents, end of period
    
    
    628,506
    
    
    $
    305,962
 The accompanying notes are an integral part of these 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 May 31, 2005, and its results of
operations for the three and nine months ended May 31, 2005 and May 31, 2004. Results of the
Companys operations for the interim period ended May 31, 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. 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 5




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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 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 the first fiscal year 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. 6




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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: May 31, 2005
    
    
    August 31, 2004Finished goods
    
    $
    11,324,563
    
    
    $
    11,920,405Raw materials
    
    
    8,784,857
    
    
    
    9,866,736Supplies
    
    
    1,137,317
    
    
    
    1,047,748Work-in-process
    
    
    119,409
    
    
    
    117,396Allowance for obsolete inventory
    
    
    (408,633
    )
    
    
    (308,727
    )Total
    
    $
    20,957,513
    
    
    $
    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. In July 2004, we exited and no longer utilized our owned buildings located in
Kearneysville, West Virginia and Greencastle,
Pennsylvania. For the three and nine month periods ended May 31, 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. In July 2005, the
Company executed contracts for sale, containing customary and usual conditions, on both locations.
The contracts are scheduled for closing in late August and early September 2005. The Company has determined the plan of sale criteria in the statement of Financial Accounting
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. EXTINGUISHMENTOF DEBT TST was a defendant in a suit filed in Fiscal 2003 for the collection of sums due under two
promissory notes. The liability of $577,145 was included on the Companys balance sheet. TST
asserted various defenses and the parties settled. TST has completed all payments associated with
the settlement and recorded extinguishment of debt in the amount of $489,645. 7




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8.LONG-TERM DEBT AND LINE OF CREDIT: The following is a summary of long-term debt and line of credit: May 31,
    
    
    August 31,2005
    
    
    2004Line of Credit with a commercial financial corporation under
revolving credit line, maturing November 2007, 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 (5.75% and 4.25%,
respectively, as of May 31, 2005 and August 31, 2004).
    
    $
    8,246,504
    
    
    $
    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.
    
    
    193,886
    
    
    
    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.
    
    
    533,186
    
    
    
    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.
    
    
    155,463
    
    
    
    175,978Notes payable to various commercial financial corporations,
secured by equipment, interest rates ranging from 0 % to 10.5
%, maturing at various dates from June 2005 through July 2009.
    
    
    113,754
    
    
    
    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.
    
    
    1,866,326
    
    
    
    1,944,381Acquisition note payable, unsecured, payable in quarterly
installments of $15,000 (including interest at 8%), maturing
April 2006. (See Footnote 7)
    
    
    -0-
    
    
    
    225,000Acquisition note payable, secured by equipment, payable in
monthly installments of $16,024, no interest, matured May 2003.
(See Footnote 7)
    
    
    -0-
    
    
    
    352,145Note payable to a commercial financial corporation, secured by
real property payable in monthly installments of $12,377.85,
including interest at prime plus 1.125% with a cap of 7.5%
(6.375% at May 31, 2005) maturing September 2009.
    
    
    4,369,382
    
    
    
    4,460,102Note 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 May 31, 2005 and 4.5% at
August 31, 2004), maturing February 2009.
    
    
    821,429
    
    
    
    982,143Acquisition notes payable, unsecured, payable in monthly
installments of $16,666, maturing February 2007.
    
    
    342,422
    
    
    
    476,905Financing 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.
    
    
    1,802,902
    
    
    
    -0-Prepetition-
 8




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May 31,
    
    
    August 31,2005
    
    
    2004Note 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.
    
    
    221,174
    
    
    
    229,073Total
    
    
    18,666,428
    
    
    
    16,658,850Less Current Maturities
    
    
    (9,485,739
    )
    
    
    (8,266,933
    )Long-Term Debt
    
    $
    9,180,689
    
    
    $
    8,391,917
 Prepetition amount listed above represents the renegotiated amounts and terms under the 1993 plan
of reorganization. In June 2005, TST amended its revolving line of credit to extend the maturity date to November
2007. TSTs 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 million as of May 31, 2005. As of July 13, 2005 the
availability was $4 million. 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 May 31,
2005, the Company was in compliance with all covenants. 8.SUPPLEMENTAL CASH FLOW INFORMATION Three Months ended
    
    May 31, 2005
    
    
    May 31, 2004Cash paid during the period for:Interest
    
    
    318,030
    
    
    
    234,961Income taxes
    
    
    50,724
    
    
    
    500,000
 Nine Months ended
    
    May 31, 2005
    
    
    May 31, 2004Cash paid during the period for:Interest
    
    
    885,386
    
    
    
    852,211Income taxes
    
    
    120,724
    
    
    
    1,010,639
 During the three and nine month periods ended May 31, 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




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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. Three Months Ended
    
    May 31,
    
    
    May 31,Pro forma impact of fair value method
    
    2005
    
    
    2004Reported net (loss) income
    
    $
    (573,646
    )
    
    $
    348,051Less: fair value impact of employee
stock options
    
    
    
    
    
    
    1,200Pro Forma net (loss) income
    
    $
    (573,646
    )
    
    $
    346,851Earnings per common shareBasic-as reported
    
    $
    (0.11
    )
    
    $
    0.07Diluted-as reported
    
    $
    (0.11
    )
    
    $
    0.07Basic-pro forma
    
    $
    (0.11
    )
    
    $
    0.07Diluted-pro forma
    
    $
    (0.11
    )
    
    $
    0.07Weighted 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-
 Nine Months Ended
    
    May 31,
    
    
    May 31,Pro forma impact of fair value method
    
    2005
    
    
    2004Reported net (loss) income
    
    $
    (2,592,702
    )
    
    $
    1,092,507Less: fair value impact of employee
stock options
    
    
    1,500
    
    
    
    3,600Pro Forma net (loss) income
    
    $
    (544,202
    )
    
    $
    1,088,907Earnings per common shareBasic-as reported
    
    $
    (0.48
    )
    
    $
    0.21Diluted-as reported
    
    $
    (0.48
    )
    
    $
    0.21Basic-pro forma
    
    $
    (0.48
    )
    
    $
    0.21Diluted-pro forma
    
    $
    (0.48
    )
    
    $
    0.21Weighted 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-
 10




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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. In June 2005, the United States District Court for the
Northern District of Texas  Dallas Division ruled that it did not have jurisdiction over the
matter. TST filed suit in state court in Texas and the Defendant filed suit in state court in
California. The Defendant also filed for arbitration in California. TST is responding to the
California suit and arbitration by asserting the parties waived all rights to arbitrate by
agreement and the appropriate venue is in Texas. TST was a defendant in a suit filed in Fiscal 2003 for the collection of sums due under two
promissory notes. The liability of $577,145 was included on the Companys balance sheet. TST
asserted various defenses and the parties settled. TST has completed all payments associated with
the settlement and recorded extinguishment of debt in the amount of $489,645. 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 nine month periods ended May 31, 2005. In June 2005, we engaged
counsel to pursue our claims against potentially liable parties for losses incurred. 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. One outside sales representative was determined not to have sufficient contacts with the
state of
Texas and therefore was dismissed from the action. Discovery to date has revealed insufficient
grounds to
pursue the claim against the competitor and the claim against the competitor was also dismissed. 11




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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. On June 2, 2005, TST was served with the preference
lawsuit. The
suit is based upon a gross preference demand and the Company believes subsequent to a full
preference
analysis and the Companys utilization of various defenses, any liability should be lowered to a
materially
reduced amount. The Companys Corporate Income Tax Returns for the fiscal years ending August 31, 2001, 2002, and
2003, are currently under examination by the Internal Revenue Service (IRS). The IRS has
proposed adjustments to the fiscal years under examination, and the matter has been sent to the
Appeals Division of the IRS. The Company does not believe that the proposed adjustments will be
upheld by the Appeals Division. In November 2004, TST filed a lawsuit in the Dallas County Judicial District against a company that
operated as our customer and as a vendor, alleging breach of contract seeking to collect an
outstanding accounts receivable and against an employee of the company alleging libel and slander.
The parties settled in mediation and the suit was dismissed with prejudice. From March 22, 2005 to May 16, 2005, a shareholder made four demands requesting inspection of a
large volume and broad range of documents pursuant to Section 220 of Delaware General Corporation
Law. Management provided some documents in response to the request, advised that many others were
available on EDGAR, requested the shareholder fund the personnel necessary to retrieve the large
volume items, and directed the shareholder to his agent, who was a member of our Board of Directors
from October 23, 2002 to April 22, 2004, and was the Financial Expert of the Audit Committee
during his tenure. The shareholders agent voted in favor of all resolutions presented to the Board
and Audit Committee .Management believes the request contains unrelated, overly broad and/or unduly
burdensome requests. On June 30, 2005, the shareholder filed in the Court of Chancery of the state
of Delaware requesting the documents. We will respond to the suit and allow the judge to determine
the appropriate production. 
 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. 12




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Revenue Recognition TST records sales of hard copy imaging and bottled water products when products are shipped to
customers. Our revenue recognition policy complies with the required four revenue recognition
criteria: Our customers purchase orders or on line authorizations and our order acknowledgments
include the terms of the sale and are binding on the customer, persuasive evidence that a
transaction exits; Delivery has occurred, as risk of loss of the product has passed to the
customer; The purchase orders, on line authorizations and order acknowledgments make our price to
our customer fixed or determinable; Finally, we assess the likelihood of collecting credit accounts
prior to revenue recognition and are reasonably assured the sales are collectible due to our credit
policies and collection methods. The Company reserves against doubtful accounts based upon
historical experience and managements evaluation of existing economic conditions. 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 doubtful
account 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. Typically, returns are not material, therefore, generally, we record reductions in revenue when
products are returned and they are not accrued for with sales reduced to reflect estimated returns.
On occasion a customer may request authorization for an extraordinary return of product. Such
request is analyzed and if material, accrued for with the estimated return applied as a reduction
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. 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 was, for example, ordered in error by the
customer and is in re-saleable condition, returned within 4 months of original purchase and has not
been discontinued from the product line. 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 independent
sales representatives, which are adjusted monthly to reflect increases and decreases.
Advertising allowances provided to our customers must be used for advertising of our products
and services and can not be used for any other purposes. 13




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For the three months ended May 31, 2004 and May 31, 2005, we recorded customer rebates in the
amount of $1.3 million and $1.3, respectively. For the nine months ended May 31, 2004 and May 31,
2005, we recorded customer rebates in the amount of $3.8 million and $3.6 million, respectively.
The customer rebates are recorded as a decrease to sales. For the three months ended May 31, 2004 and May 31, 2005, we recorded advertising allowances in the
amount of $564,000 and $267,000, respectively. For the nine months ended May 31, 2004 and May 31,
2005, we recorded advertising allowances in the amount of $1.6 and $791,000, respectively. The
advertising allowances are recorded as an SG&A expense. For the three months ended May 31, 2004 and May 31, 2005, we recorded independent sales commissions
in the amount of $97,000 and $194,805, respectively. For the nine months ended May 31, 2004 and May
31, 2005, we recorded independent sales commissions in the amount of $277,000 and $325,000,
respectively. The independent sales commissions are recorded as an SG&A expense. 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 May 31, 2005 and May 31, 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 million in the three months ended May 31, 2004 to $20
million in the three months ended May 31, 2005 (Third Quarter 2005), a decrease of $5 million or
22.2%. Net sales decreased from $78 million in the nine months ended May 31, 2004, to $58 million
in the nine months ended May 31, 2005, a decrease of $20 million or 25%. Net sales decreased in
the three and nine months period ended May 31, 2005, as 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 $3.5 million in the three months ended May 31, 2004, to
$1 million in the Second Quarter 2005, a decrease of 72%. Gross profit decreased from $10.5 million
in the nine months ended May 31, 2004, to $2.7 million in the nine months ended May 31, 2005, a
decrease of 74.8%.
Gross profit margin for Third Quarter 2005 decreased to 5% as compared to 13.8 % for the three
month period ended May 31, 2004. Gross profit margin for the nine month period ended May 31, 2005,
decreased to 4.5% as compared to 13.5% for the nine month period ended May 31, 2004. The decreases
in gross profit and gross profit margin for the three and nine month periods ended May 31, 2005,
and the decrease in volume of purchases by key customers. 14




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Selling, General, and Administrative ExpensesSG&A expenses decreased from $ 2.6 million in the
three months ended May 31, 2004 to $2.2 in the Third Quarter 2005. SG&A expenses decreased from
$7.8 million in the nine months ended May 31, 2004 to $6.7 million in the nine months ended May 31,
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 10.3 % in the three months ended May 31, 2004,
to 11.2% in the Third Quarter 2005. SG&A expenses as a percentage of net sales increased from 10%
in the nine months ended May 31, 2004, to 11.5 % in the nine months ended May 31, 2005. The
increase in SG&A as a percentage of sales for three and nine month periods ended May 31, 2005, is
due to the decrease in net sales. Interest ExpenseInterest expense increased from $244,000 in the three months ended May 31,
2004, to $ 323,000, or 32 %, in Third Quarter 2005. Interest expense increased from $876,000 in the
nine months ended May 31, 2004, to $901,000, or 2.8 % in the nine months ended May 31, 2005. The
increase of Interest Expense by 32 % in the Third Quarter 2005 and the increase by 2.8% in the nine
months ended May 31, 2005, as compared to the corresponding periods of the prior year is due to the
increase of borrowings under our line of credit and increases in the prime interest rate. Income Taxes- Income tax expense decreased from $ 207,000 for the three months ended May 31,
2004, to a tax benefit of $275,000 in Third Quarter 2005. Income tax expense decreased from
$678,000 for the nine months ended May 31, 2004, to a tax benefit of $ 1.2 million in the nine
months ended May 31, 2005.The decrease in income tax expense for Third 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. Therefore, we believe that
any quantity of lost or lower margin sales should not materially impact our liquidity, capital
resources and results of operations at the time of termination. 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. The decline in the market of continuous feed business forms has begun to materially impact our net
sales and revenues. Management has partially 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. However, the increase in revenue attributable to these categories has not increased in
proportion to the decline of the continuous feed business forms sales. 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 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 15




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##### Table of Contents



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 June 8, 2005, TST amended its loan agreement with a commercial financial corporation to
extend the maturity date to November 17, 2007. The amended agreement provides for a $15 million
line of credit and an inventory sub-limit of $12 million. The amended loan 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 5.75%, respectively, at May 31, 2005), are based upon specified
percentages of eligible accounts receivable and inventories. As of May 31, 2005, there was a $3
million borrowing capacity remaining under the $15 million revolving line of credit, adequate
available capital to operate our business.
A portion of the net proceeds from the sale of our two facilities located in Kearneysville, West
Virginia and Greencastle, Pennsylvania will be applied to reduce the outstanding borrowings on this
line (See Footnote 6). Borrowings under our line of credit increased from $6.9 million at August 31, 2004, to $8.2 million
at May 31, 2005, an increase of $1.3 million, or 19%. The increased borrowing primarily resulted
from start up costs associated with our new bottled spring water operations. Working capital increased to $13.6 million as of May 31, 2005, from $12.7 million at August 31,
2004. This represented an increase of 7%. This increase is primarily attributable to the $1.7
million net operating loss carry back created by net operating losses incurred during the current
fiscal year. Net Cash Provided by/Used in Operating, Investing, and Financing Activities Our operating activities used $176,000 of cash in the nine month period ended May 31, 2005 and
provided $8.6 million in cash in the nine month period ended May 31, 2004. Operating cash flows for
the nine month period ended May 31, 2005 was used primarily for reductions in accounts payable. Cash used in investing activities was $887,000 for the nine month period ended May 31, 2005. Cash
provided by investing activities was $1.6 million for the nine month period ended May 31, 2004.
Cash used in investing activities for the nine month period ended May 31, 2005, was due to
expenditures for property, plant and equipment associated with the spring water bottling facility,
partially offset by proceeds from asset dispositions. Cash provided by financing activities was $1.5 million for the nine month period ended May 31,
2005. Cash used in financing activities was $10 million for the nine month period ended May 31,
2004. Cash provided by
financing activities for the nine month period ended May 31, 2005, was due to increased borrowings
on our line of credit and financed expenditures associated with our new bottled spring water
operations. 16




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##### Table of Contents



Capital Expenditures During the nine month period ended May 31, 2005, we incurred capital expenditures of $784,000,
consisting of equipment purchases associated with our new bottled spring water operations. We
incurred an additional
$143,000 related to equipment purchases for our hard copy imaging operations. During the nine month
period ended May 31, 2004, we spent $54,000 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 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 facilities since July 2004, and start up
operations at our spring water bottling facility, adversely impacted our liquidity and capital
resources in the nine month period ended May 31, 2005 as compared to the corresponding period of
the prior year. The inventory is being converted to cash, management is continuing to reduce
operating costs, contracts on our two empty facilities have been executed and management intends to
close the transactions in late August or early September 2005, and we are selling water product.
Absent unforeseen circumstances these known trends and uncertainties indicate that we should start
returning to profitability in the first quarter of our fiscal 2006 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 May 31, 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. As a result of the loss of continuous forms
business from key customers, 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 $21 million as of May 31, 2005. Management is continuing to streamline
ordering cycles and SKUs, and intends to further reduce inventory. 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. 17




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##### Table of Contents



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. We have
recently announced an increase in finished goods pricing in an attempt to regain the lost margins
from this event. 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 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 or other products. 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. In Third
Quarter 2005, we engaged an independent sales representative with extensive experience and contacts
in the bottled beverage industry to assist our marketing efforts. We believe the addition of this
key individual should greatly enhance our exposure in this market. 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. 18




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Forward-Looking Statements This Form 10-Q may contain forward looking statements. Many of these forward looking statements
can be identified by use of words such as may, will, expect, anticipate, estimate, assume,
continue, project, plan, and similar words and phrases. The Companys actual results and future
financial condition may differ materially from those expressed in any such forward looking
statements as a result of many factors that may be outside the Companys control. Such factors
include, without limitation: general economic conditions, availability of raw materials, the
cyclical nature of the industries 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, competition from existing and potential competitors; competition from other
channels of distribution; and pricing pressures The Company does not undertake any obligation to
update its forward looking statements. 
 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 May 31, 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 May 31, 2005, there was
no material exposure to our financial position or results of operations. 
 Item 4. Controls and Procedures Evaluation of controls and procedures Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial
Officer, the effectiveness of our 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 occurred in the current quarter. 19




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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: July 15, 2005 Impreso, Inc.(Registrant)/s/ Marshall D. SorokwaszMarshall D. SorokwaszChairman of the Board, ChiefExecutive Officer, President,and Director/s/ Susan M. AtkinsSusan M. AtkinsChief Financial Officerand 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.
 22