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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 29, 2004 OR o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the transition period  to 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 April 12, 2004$0.01 Par Value
    
    5,278,780




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IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
February 29, 2004 INDEX PART I.
    
    FINANCIAL INFORMATION
    
    Page NumberItem 1.
    
    Condensed Consolidated Financial Statements:Interim Condensed Consolidated Balance Sheets as of February 29, 2004
(Unaudited) and August 31, 2003
    
    
    1Interim Condensed Consolidated Statements of Operations for the
Three and Six Months Ended February 29, 2004 and February 28, 2003
(Unaudited)
    
    
    3Interim Condensed Consolidated Statements of Cash Flows for the
Three and Six Months Ended February 29, 2004 and February 28, 2003
(Unaudited)
    
    
    4Notes to Interim Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4.
    
    Controls and Procedures
    
    
    15PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    16Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities
    
    
    16Item 3.
    
    Defaults upon Senior Securities
    
    
    16Item 4.
    
    Submission of Matters to a vote of Security Holders
    
    
    16Item 5.
    
    Other Information
    
    
    16Item 6.
    
    Exhibits and Reports on Form 8-K and 8-K/A
    
    
    16SIGNATURES
    
    
    18INDEX TO EXHIBITS
    
    
    19Employment Agreement - Mashall SorokwaszCertification 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 CONSOLIDATED BALANCE SHEETS ASSETS
(Unaudited) February 29,
    
    August 31,2004
    
    2003Current assets:Cash and cash equivalents
    
    
    593,518
    
    
    $
    95,129Trade accounts receivable, net of allowance for doubtful accounts
of $769,590 at February 29, 2004 and $630,916 as of August 31, 2003
    
    
    11,648,761
    
    
    
    12,144,735Inventories
    
    
    21,573,137
    
    
    
    28,462,091Prepaid expenses and other
    
    
    235,775
    
    
    
    141,729Deferred income tax assets
    
    
    630,125
    
    
    
    574,924Total current assets
    
    
    34,681,316
    
    
    
    41,418,608Property, plant and equipment, at cost
    
    
    28,091,820
    
    
    
    28,030,124Less-Accumulated depreciation
    
    
    (13,892,500
    )
    
    
    (13,196,099
    )Net property, plant and equipment
    
    
    14,199,320
    
    
    
    14,834,025Other assets
    
    
    147,288
    
    
    
    83,667Total assets
    
    $
    49,027,924
    
    
    $
    56,336,300
 The accompanying notes are an integral part of the condensed consolidated financial statements 1




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IMPRESO, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS EQUITY
(Unaudited) February 29,
    
    August 31,2004
    
    2003Current liabilities:Accounts payable
    
    
    11,637,935
    
    
    $
    11,102,673Accrued liabilities
    
    
    2,407,418
    
    
    
    1,892,686Current maturities of long-term debt
    
    
    1,106,280
    
    
    
    1,343,231Line of credit
    
    
    5,779,694
    
    
    
    14,355,445Current maturities of prepetition debt
    
    
    8,234
    
    
    
    8,084Total current liabilities
    
    
    20,939,561
    
    
    
    28,702,119Deferred income tax liability
    
    
    938,001
    
    
    
    1,021,357Long-term debt, net of current maturities
    
    
    9,140,030
    
    
    
    9,342,784Long-term portion of prepetition debt, net of current maturities
    
    
    224,986
    
    
    
    229,150Total liabilities
    
    
    31,242,578
    
    
    
    39,295,410Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized;
0 shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 15,000,000 shares authorized;
5,292,780 issued and 5,278,780 outstanding
    
    
    52,928
    
    
    
    52,928Treasury stock (14,000 shares, at cost)
    
    
    (38,892
    )
    
    
    (38,892
    )Additional paid-in capital
    
    
    6,353,656
    
    
    
    6,353,656Retained earnings
    
    
    11,417,654
    
    
    
    10,673,198Total stockholders equity
    
    
    17,785,346
    
    
    
    17,040,890Total liabilities and stockholders equity
    
    
    49,027,924
    
    
    $
    56,336,300
 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
    
    Six Months EndedFebruary 29
    
    February 28,
    
    February 29
    
    February 28,2004
    
    2003
    
    2004
    
    2003Net Sales
    
    $
    26,760,584
    
    
    $
    31,639,782
    
    
    $
    54,929,855
    
    
    $
    63,511,763Cost of sales
    
    
    23,752,727
    
    
    
    28,464,078
    
    
    
    48,541,236
    
    
    
    57,062,425Gross profit
    
    
    3,007,857
    
    
    
    3,175,704
    
    
    
    6,388,619
    
    
    
    6,449,338Selling, General and administrative expense
    
    
    2,265,258
    
    
    
    2,414,558
    
    
    
    4,547,254
    
    
    
    4,784,648Operating income
    
    
    742,599
    
    
    
    761,146
    
    
    
    1,841,365
    
    
    
    1,664,690Other (income) expenses:Interest expense
    
    
    295,083
    
    
    
    474,098
    
    
    
    632,097
    
    
    
    957,737Miscellaneous (income) expenses
    
    
    716
    
    
    
    (79,647
    )
    
    
    (6,154
    )
    
    
    (157,093
    )Income before income tax expense
    
    
    446,800
    
    
    
    366,695
    
    
    
    1,215,422
    
    
    
    864,046Income tax expense:Current
    
    
    224,522
    
    
    
    144,927
    
    
    
    540,245
    
    
    
    333,501Deferred
    
    
    (39,962
    )
    
    
    5,373
    
    
    
    (69,279
    )
    
    
    9,530Total Income Tax Expense
    
    
    184,560
    
    
    
    150,300
    
    
    
    470,966
    
    
    
    343,031Net income
    
    $
    262,240
    
    
    $
    216,395
    
    
    
    744,456
    
    
    $
    521,015Net income per common share
(basic and diluted)
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.14
    
    
    $
    0.10Weighted average shares outstanding
    
    
    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) Six Months EndedFebruary 29,
    
    February 28,2004
    
    2003Cash Flows From Operating ActivitiesNet income
    
    $
    744,456
    
    
    $
    521,015Adjustments to reconcile net income to net cash
used in operating activities-Depreciation and amortization
    
    
    726,351
    
    
    
    721,187Provision for Losses of Receivables
    
    
    238,651
    
    
    
    Provision for Losses of Inventory
    
    
    (11,438
    )
    
    
    Deferred income tax (benefit) expense
    
    
    (138,557
    )
    
    
    9,530Decrease in trade accounts receivable, net
    
    
    257,323
    
    
    
    2,301,735Decrease (Increase) in inventories
    
    
    6,900,392
    
    
    
    (206,594
    )Increase in prepaid expenses and other
    
    
    (157,667
    )
    
    
    (29,417
    )Increase (Decrease) in accounts payable
    
    
    535,262
    
    
    
    (4,695,896
    )Increase (Decrease) in accrued liabilities
    
    
    514,732
    
    
    
    (1,107,151
    )Net cash provided by (used in) operating activities
    
    
    9,609,505
    
    
    
    (2,485,591
    )Cash Flows From Investing Activities:Additions to property, plant, and equipment
    
    
    (94,973
    )
    
    
    (193,228
    )Proceeds from sale of property, plant and equipment
    
    
    3,328
    
    
    
    Net Cash used in investing activities
    
    
    (91,645
    )
    
    
    (193,228
    )Cash Flows From Financing Activities:Net (payments) borrowings on line of credit
    
    
    (8,575,751
    )
    
    
    2,995,513Payments on prepetition debt
    
    
    (4,014
    )
    
    
    (3,854
    )Net payments on postpetition debt, net
    
    
    (439,705
    )
    
    
    (390,231
    )Warrants issued
    
    
    
    
    
    
    6,447Net cash (used in) provided by financing activities
    
    
    (9,019,470
    )
    
    
    2,607,875Net increase (decrease) in cash and cash equivalents
    
    
    498,389
    
    
    
    (70,944
    )Cash and cash equivalents, beginning of period
    
    
    95,129
    
    
    
    202,809Cash and cash equivalents, end of period
    
    $
    593,518
    
    
    $
    131,865
 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., (formerly Impreso.com, Inc.) a Delaware corporation (referred to
collectively with its subsidiaries as the Company), is the parent holding
company of TST/Impreso, Inc. (TST), a manufacturer and distributor to dealers
and other resellers of paper and film products for commercial and home use in
domestic and international markets, and Hotsheet.com, Inc., the owner and
operator of the Hotsheet.com web portal. TSTs product line consists of
standard continuous computer stock business forms; thermal facsimile paper;
cut sheet products such as copy paper, ink jet paper, digital photo paper and
transparencies; fine business stationary; point of sale and cash register
machine rolls; high speed laser roll paper; wide format engineering rolls;
wide format ink jet media; and processed laser cut sheets. TST has one wholly
owned subsidiary, TST/Impreso of California, Inc., which was formed to support
the activities of the paper converting segment of the Companys business. 2. INTERIM 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 29, 2004, and its results of
operations for the three and six months ended February 29, 2004 and February
28, 2003. Results of the Companys operations for the interim period ended
February 29, 2004, 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 Companys Form 10-K), for the fiscal year ended
August 31, 2003 (Fiscal 2003). 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 5




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compensation and the effect of the method used on reported
results. The Company currently does not intend to change to the fair value
based method of accounting for stock-based compensation, but will adhere to the
disclosure requirements of the Statement. The Company has adopted the
disclosure requirements for the year ending August 31, 2004 (Fiscal 2004) . 4. 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 29, 2004
    
    August 31,2003Finished goods
    
    $
    12,738,762
    
    
    $
    15,409,606Raw materials
    
    
    8,108,090
    
    
    
    12,345,769Supplies
    
    
    945,576
    
    
    
    1,008,103Work-in-process
    
    
    157,389
    
    
    
    86,731Allowance for obsolete inventory
    
    
    (376,680
    )
    
    
    (388,118
    )Total
    
    $
    21,573,137
    
    
    $
    28,462,091
 5. LONG-TERM DEBT AND LINE OF CREDIT: February 29,
    
    August 31,The following is a summary of long-term debt and line of credit:
    
    2004
    
    2003Line of Credit with a commercial financial corporation under
revolving credit line, maturing May 2004, secured by
inventories, trade accounts receivable, equipment, goodwill
associated with TSTs trademark IMPRESO (no value on
financial statements), and a personal guarantee by the trustee
of a trust which is a principal stockholder of the Company,
interest payable monthly from October 6, 2003 to January 5,
2004, on $5 million and from January 6, 2004 to April 5, 2004,
at LIBOR plus 2.75% (3.902 % as of February 29, 2004), balance
at prime plus .25% (4.25 % as of February 29, 2004).
    
    $
    5,779,694
    
    
    $
    14,355,445Note payable to a commercial financial corporation, secured by
real property, payable in monthly installments of $15,151
(including interest at 7.75%, or 4.5% above the 11th District
cost of funds rate, whichever is greater; 7.75% as of February
29, 2004), maturing June 2008.
    
    
    1,627,509
    
    
    
    1,638,448Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$4,457 (including interest at 8.50%), maturing November 2009.
    
    
    240,754
    
    
    
    257,641Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$10,843 (including interest at 8.50%), maturing July 2010.
Revolving lenders blanket lien subordinated to notes
collateral.
    
    
    643,892
    
    
    
    682,876Note payable to a commercial financial corporation, secured by
real property, payable in monthly installments of $2,834
(including interest at 5.5%), maturing October 2010.
    
    
    187,916
    
    
    
    199,531
 6




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February 29,
    
    August 31,The following is a summary of long-term debt and line of credit:
    
    2004
    
    2003Notes payable to various commercial financial corporations,
secured by equipment, interest rates ranging from 5.25 % to
11.016 %, maturing at various dates from September 2004 through
July 2008.
    
    
    210,701
    
    
    
    308,323Notes payable to a commercial financial corporation, secured by
real property and a personal guarantee by the trustee of a
trust which is a principal stockholder of the Company, payable
in monthly installments of $21,407 (including interest at 8%),
maturing March 2011.
    
    
    1,993,884
    
    
    
    2,041,453Acquisition note payable, unsecured, payable in quarterly
installments of $15,000 (including interest at 8%), maturing
April 2006.
    
    
    225,000
    
    
    
    225,000Acquisition note payable, secured by equipment, payable in
monthly installments of $16,024, no interest, matured May 2003.
    
    
    352,145
    
    
    
    352,145Note payable to a commercial financial corporation, secured by
real property and a personal guarantee by the trustee of a
trust which is a principal stockholder of the Company, payable
in monthly installments of $22,827 (including a fixed scheduled
for interest, 7.25 % at February 29, 2004), maturing April
2007.
    
    
    3,111,422
    
    
    
    3,135,614Note payable to a commercial financial corporation, secured by
equipment, payable in monthly installments of $17,857 including
interest at a variable rate equal to 30 day LIBOR plus 350
basis points, 4.53% at February 29, 2004), maturing February
2009.
    
    
    1,089,286
    
    
    
    1,196,429Acquisition notes payable, unsecured, payable in monthly
installments of 16,666, maturing February 2007.
    
    
    563,801
    
    
    
    648,556Prepetition-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 May 2023.
    
    
    233,220
    
    
    
    237,234Total
    
    
    16,259,224
    
    
    
    25,278,694
 7




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February 29,
    
    August 31,The following is a summary of long-term debt and line of credit:
    
    2004
    
    2003Less Current Maturities
    
    
    (6,894,208
    )
    
    
    (15,706,760
    )Long-Term Debt
    
    $
    9,365,016
    
    
    $
    9,571,934
 Prepetition amount listed above represents the renegotiated amounts and terms
under the 1993 plan of reorganization. In April 2002, TST amended its revolving line of credit to increase the line
from $22 million to $25 million. The amended revolving credit line is limited
to the lesser of $25 million or a percentage of eligible trade accounts
receivable and inventories, as defined. The remaining availability under the
revolving credit line was $8.9 million as of February 29, 2004. On January 5, 2004, TST elected to implement the euro dollar interest rate of
1.152 % plus 2.75%, to $5,000,000 of the Companys outstanding loan balance.
This rate was locked until April 4, 2004, after which the entire line reverted
to prime plus .25%. 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 29, 2004, the
Company was in compliance with all covenants. 6. SUPPLEMENTAL CASH FLOW INFORMATION Three Months ended
    
    February 29, 2004
    
    February 28, 2003Cash paid during the period for:Interest
    
    $
    295,083
    
    
    $
    474,098Income taxes
    
    $
    499,300
    
    
    $
    191,436
 Six Months ended
    
    February 29, 2004
    
    February 28, 2003Cash paid during the period for:Interest
    
    $
    632,097
    
    
    $
    957,737Income taxes
    
    $
    507,569
    
    
    $
    568,314
 7. 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 8




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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
    
    February 29 2004
    
    February 28 2003Net EarningsAs reported
    
    $
    262,240
    
    
    $
    216,395Pro forma
    
    
    261,040
    
    
    
    207,395Stock-based employee
compensation expense, net of taxAs reported
    
    
    
    
    
    
    Pro forma
    
    
    1,200
    
    
    
    9,000Net earnings per common and
Common equivalent share:Basic  as reported
    
    
    .05
    
    
    
    .04Diluted  as reported
    
    
    .05
    
    
    
    .04Basic  Pro forma
    
    
    .05
    
    
    
    .04Diluted  Pro forma
    
    $
    .05
    
    
    $
    .04
 Six Months Ended
    
    February 29 2004
    
    February 28 2003Net EarningsAs reported
    
    $
    744,456
    
    
    $
    521,015Pro forma
    
    
    742,456
    
    
    
    498,015Stock-based employee
compensation expense, net of taxAs reported
    
    
    
    
    
    
    Pro forma
    
    
    2,000
    
    
    
    23,000Net earnings per common and
Common equivalent share:Basic  as reported
    
    
    .14
    
    
    
    .10Diluted  as reported
    
    
    .14
    
    
    
    .10Basic  Pro forma
    
    
    .14
    
    
    
    .09Diluted  Pro forma
    
    $
    .14
    
    
    $
    .09
 8. Legal Matters In Fiscal 2003 an employee filed suit under the Family Leave and Medical Act
claiming retaliatory treatment (firing) in violation of the FMLA. In the
Second Quarter of Fiscal 2004, TST settled with the employee settled for a
nominal amount. 9




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TST is a defendant in a suit filed in Fiscal 2003 for the collection of sums
due under two promissory notes. These liabilities are included on the
Companys balance sheet. TST recently prevailed in its motion to stay the
adversary proceeding and to compel arbitration in Dallas, Texas under the terms
of the parties purchase agreement. TST asserts that liability does not exist
because of fraud and contractual breaches in connection with the agreements. On October 9, 2003, in the United States District Court Central District of
California Southern Division, Avery Dennison Office Products Company and Avery
Dennison Corporation (Avery) filed a patent infringement lawsuit against TST
claiming TSTs corporate cut business card products infringed on patents and
pending patents owned by Avery. On March 11, 2004, the parties executed a
confidential settlement agreement, which includes TSTs agreement to
discontinue selling corporate cut business card products. Management believes
that the discontinuation of the sale of these products will not have a material
impact on our financial position or results of operations. On January 14, 2004,
the Company filed suit against three vendors of the infringing products
claiming breach of UCC warranties for selling to TST/Impreso, Inc. patent
infringing goods. The Company also filed a claim with its insurance carrier
requesting coverage. The insurance company has reserved their decision pending
their own investigation. On November 5, 2003, the Company discovered the Companys payroll
administrator was fraudulently diverting Company funds into her personal bank account. The
payroll administrator admitted guilt to the FBI and the internal investigator of the Companys bank.
The investigation by the FBI, the bank and the Company revealed a loss of approximately $628,000
over a period starting in September 2000 until October 2003. The investigation is complete.
The Company has notified its insurance companies of the loss under its employee theft coverage
and management believes that approximately $260,000 of the losses will be reimbursed by
insurance. The loss recovery was difficult to initially determine due to the number of policies and
insurers covering the time frame in question. The Company believes the employee will plead on
information and will be incarcerated as a result of the embezzlement. 9. Subsequent Events On April 5, 2004, the Company sold and simultaneously executed a five
year lease for its two California buildings. The total sales price for the two buildings was $2.903
million. After paying off the $1.660 million mortgage, the net proceeds
of the sale were approximately $1.127 million. After the annual Board meeting on January 28, 2004, TST announced it was
entering the bottled water business. On March 23, 2004, the Company
submitted approximately $1.9 million in orders to manufacturers for the
water processing equipment, with an expected delivery date of July 2004. 
 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 condensed 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 10




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judgments are based on historical experience, the Companys observation
of trends in the industry, information provided by customers and information
available from other outside sources, as appropriate and available at the time
the estimates are made. However, as described below, these estimates could
change materially if different information or assumptions were used. The
Company believes that of its significant accounting policies, the following may
involve a higher degree of judgment or estimation than other accounting
policies. Accounts Receivable (doubtful accounts) Reserves The Company provides for losses on accounts receivable based upon their current
status, historical experience and managements evaluation of existing economic
conditions. Significant changes in customer profitability or general economic
conditions may have a significant effect on the Companys allowance for
doubtful accounts. Revenue Recognition TSTs sales are recorded when products are shipped to customers. TST is
reasonably assured a majority of the sales are collectible upon shipment due to
its credit policies and collection methods. For those accounts TST is not
reasonably assured of collection the Company reserves against doubtful accounts
based upon historical experience and managements evaluation of existing
economic conditions. Hotsheet.com, Inc. generates its revenue by click through
fee advertising revenues and commissions earned. Click through fees are
generated when traffic is sent from the Hotsheet.com website, via a link, to a
vendors website. Commissions are generated when the linked traffic makes
purchases. The revenue is recognized upon receipt. Inventories Inventories are valued at the lower of cost or market, cost being determined on
the first-in, first-out method. Reserves for slow moving, obsolete products, or
bad (damaged) products are based on historical experience, acquisition
activities, and secured lender policies. The Company evaluates, and if
necessary, adjusts reserves quarterly. Historically, the Company has not reserved for slow moving, obsolete or bad
inventories. Substantially all of the slow moving products can be repackaged
into different formats or labels. Demand for products that are associated with
obsolete technology slowly decline as sales of new hardware requiring new or
different consumables increase. The reduced demand for products which are
becoming obsolete is easily monitored and scheduled production of these items
is adjusted accordingly. If damage is caused to a product it is most often
minor in value and expensed as damage occurs. The Company records reductions in revenue when products are returned. Returns
and allowances are monitored based on a historical percentage of sales. All
returns must be approved by the Company prior to the product being returned,
and in some instances a restocking fee is charged to the customer. The Company
also monitors reasons for return, such as quality, shipping errors or ordering
errors. Commissions and Rebates The Company reserves commissions and rebates paid to certain customers based on
specific contractual agreements. These reserves are calculated based upon
sales by customer, and adjusted quarterly to reflect increases and decreases in
each customers sales and payments of commissions and rebates. 11




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Results of Operations for the Interim Periods Ended February 29, 2004 and
February 28, 2003. Net SalesNet sales decreased from $31.6 million in the three months ended
February 28, 2003, to $26.8 million in the three months ended February 29,
2004 (Second Quarter 2004), a decrease of $4.9 million or 15.4%. Net sales
decreased from $63.5 million in the six months ended February 28, 2003, to $55.9 million in the six months ended February 29, 2004, a decrease of $8.6
million or 13.5%. Net sales decreased in the three and six months period
ended February 29, 2004, as compared to the corresponding period of the prior
year, as a result of decreased selling prices of finished goods due to falling
raw material prices. Gross ProfitGross profit decreased from $3.2 million in the three months
ended February 28, 2003, to $3 million in the Second Quarter 2004, an decrease
of 5.3%. Gross profit remained stable at $6.4 million in the six months ended
February 28, 2003, as compared to the six months ended February 29, 2004. Gross
profit margin for the three month period ended February 29, 2004, increased to
11.2% as compared to 10% for the three month period ended February 28, 2003.
Gross profit margin for the six month period ended February 29, 2004, increased
to 11.6% as compared to 10.2% for the six month period ended February 28, 2003.
The contrast of the decrease in gross profit and the increase in gross profit
margin for three month period ended February 29, 2004, resulted from finished
goods pricing not decreasing as rapidly as raw material prices decreased. Selling, General, and Administrative ExpensesSG&A expenses decreased from $2.4 million in the three months ended February 28, 2003 to $2.3 million in
Second Quarter 2004. SG&A expenses decreased from $4.8 million in the six
months ended February 28, 2003 to $4.5 million in the six months ended
February 29, 2004. This decrease was primarily the result of the elimination
of overtime, reduction in workforce and employee benefits. SG&A expenses as a
percentage of net sales increased from 7.6% in the three ended February 28,
2003, to 8.5% in the Second Quarter 2004. SG&A expenses as a percentage of net
sales increased from 7.5% in the six months ended February 28, 2003, to 8.3% in
the six months ended February 29, 2004. The increase in SG&A as a percentage of
sales for three and six months ended February 29, 2004, is due to the decrease
in net sales. Interest ExpenseInterest expense decreased from $474,000 in the three
ended February 28, 2003, to $295,000 in Second Quarter 2004. Interest expense
decreased from $958,000 in the six months ended February 28, 2003, to $632,000 in the six months ended February 29, 2004. The decrease of 37.8% in the
three months ended February 29, 2004, and the decrease of 34% in the six months
ended February 29, 2004, is due to the reduction of inventories which reduced
our borrowings under our line of credit and decreased interest rates from
implementation of the Eurodollar rate on our floating lines of credit. Income TaxesIncome tax expense increased from $150,000 for the three
months ended February 28, 2003, to $185,000 in Second Quarter 2004. Income tax
expense increased from $343,000 for the six months ended February 28, 2003, to
$471,000 in the six months ended February 29, 2004. The increase in income tax
expense for Second Quarter, as compared to the corresponding period of the
prior year is a result of the increase in taxable income. 12




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Liquidity and Capital Resources Working capital increased to $13.7 million as of February 29, 2004, from $12.7
million at August 31, 2003. This
represented an increase of 8.1%. Effective October 28, 2002, TST entered into an amended and restated loan
agreement with a commercial financial corporation, which matures in May 2004.
The agreement provides for a $25 million line of credit and an inventory
sub-limit of $21 million. The loan is secured by, among other things,
inventory, trade receivables, equipment and a personal guarantee of Marshall
Sorokwasz, our Chairman of the Board and President, and Trustee of a trust
which is a principal shareholder of our Company. A new provision in the
amended and restated loan agreement allows the Company to elect the application
of a Eurodollar interest rate plus 2.75% for 30, 60 or 90 day periods to
specified amounts of the loan. Available borrowings under this line of credit, which accrued interest from
October 6, 2003 to January 5, 2004, on $5 million, at LIBOR plus 2.75% (3.902%
as of February 29, 2004), balance at prime plus .25% (4.25% as of February 29,
2004) are based upon specified percentages of eligible accounts receivable and
inventories. As of February 29, 2004, we have adequate capital available to
operate our business. On January 5, 2004, TST elected to implement the euro dollar interest rate of
1.152% plus 2.75%, to $5,000,000 of the Companys outstanding loan balance.
This rate was locked until April 4, 2004, after which the entire line reverted
to prime plus .25%. On April 22, 2003, we executed a one-year, $1.4 million construction loan with
the current mortgagee of the Itasca, Illinois building to expand the building
an additional 34,500 square feet. We expect the expansion to be completed by
May 2004. As a result, the Mortgagee agreed to extend the construction loan to
June 22, 2004, when the existing mortgage and the construction loan will be
combined into one note. We believe that the funds available under the loans encumbering our California,
Texas, Pennsylvania, Illinois and West Virginia plants, the construction loan
for the expansion at the Itasca facility, the revolving credit facility, cash
and cash equivalents, trade credit and internally generated funds will be
sufficient to satisfy our requirements for working capital and capital
expenditures for at least the next twelve months. Such belief is based on
certain assumptions, including the continuation of current operations and no
extraordinary adverse events, and there can be no assurance that such
assumptions are correct. In addition, expansion of our operations due to an
increased demand for products TST manufactures or significant growth of
Hotsheet.com, Inc. may require us to obtain additional capital to add new
operations or manufacturing facilities. If that should occur, we anticipate
that the funds required would be generated through securities offerings or
additional debt. There can be no assurance that any additional financing will
be available if needed, or, if available, will be on acceptable terms. As of February 29, 2004, we did not own derivative or other financial
instruments for trading or speculative purposes. The implementation of
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities does not have a material impact on our
financial position or results of operations. 13




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Inventory Management; Raw Materials of TST We believe that it is necessary for TST to maintain a sufficient inventory of
finished goods and raw materials to adequately service its customers. In recent
years inventory levels had been increased to facilitate the introduction of new
brands and expanded product lines. At the beginning of Fiscal 2002, we
implemented a program to reduce inventory. From September 1, 2001 to February
29, 2004, TST inventory levels were reduced from $38,459,817 to $21,573,137, or
approximately 56%. This is in addition to the depletion of $3 million of
inventory acquired in the purchase of the assets of United in March 2002.
Management intends to continue reducing inventory through Fiscal 2004; however,
downward pressures on raw material prices could compress the market for our
existing inventory and have a material adverse effect on the results of
operations of TST or restrain our attempts at further reducing inventory. During the third and fourth quarter of Fiscal 2003, the price of raw materials
rapidly dropped. Prices continued to decrease through the first quarter of Fiscal 2004, but in the second quarter of
Fiscal 2004 they stabilized and started an upward trend. In February 2004,
domestic and international mills announced a price increase that went into
effect on March 1, 2004. This increase was effectively passed through to a
majority of our customers. Another increase has been announced by the mills
with an effective date of May 1, 2004. We believe that prices will continue to
increase in the remaining quarters of Fiscal 2004. TST bears the risk of increases in the prices charged by its suppliers and
decreases in the prices of raw materials held in its inventory. If prices for
products held in its finished goods inventory decline, if prices for raw
materials required by it increase, or if new technology is developed that
renders obsolete products distributed and held in inventory by TST, the
Companys business could be materially adversely affected. TST purchases raw paper, coated thermal facsimile paper, coated technical
paper, carbon and carbonless paper (consisting of a wide variety of weights,
widths, colors, sizes and qualities), transparency film, packaging and other
supplies in the open market from a number of different companies around the
world. We believe that TST has adequate sources of raw material supplies to
meet the requirements of its business. We believe that TST has a good
relationship with all of its current suppliers. Market Conditions The primary product produced by the Company is continuous feed business forms.
Management believes that the market for business forms, which declined in 2003,
will continue to decline in 2004. In addition, competitors in the marketplace
have aggressively solicited existing TST customers. On April 9, 2004, TST
declined to offer a proposal to a significant customer. The customer has
decided to move a large portion of their business to a competitor in the
marketplace. The transition will take place over the Third Quarter of Fiscal
2004. The lost business, which is approximately 20% of net sales in Fiscal
2003, has been partially offset by the addition of new customers and
potentially offset by the increased sale of other products to this customer in
a new territory. If selling prices for products manufactured by us cannot increase in relation
to raw material cost increases, or if prices for products manufactured by us
decline as a result of market pressures, our results of operations could be
materially adversely affected. 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 14




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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. 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. Forward-Looking Statements Managements Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contain forward-looking
statements about our prospects for the future, including but not limited to
our ability to generate sufficient working capital, our ability to continue to
maintain sales to justify capital expenses, and our ability to generate
additional sales to meet business expansion. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those projected, including availability of raw materials,
availability of thermal facsimile, computer, laser and color ink jet paper, to
the cyclical nature of the industry in which we operate, the potential of
technological changes which would adversely affect the need for our products,
price fluctuations which could adversely impact the large inventory we require,
loss of any significant customer, and termination of contracts essential to our business. Parties are cautioned not
to rely on any such forward-looking statements or judgments in making
investment decisions. 
 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 29, 2004. The
fair market value of long-term variable interest rate debt is subject to
interest rate risk. Generally the fair market value of variable interest rate
debt will decrease as interest rates fall and increase as interest rates rise. 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 29, 2004, there was no material exposure to our
financial position or results of operations. 
 Item 4. Controls and Procedures Evaluation of controls and procedures 15




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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. 
 PART II: OTHER INFORMATION 
 Item 1. Legal Proceedings. See note 8 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. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities. None 
 Item 3. Defaults upon Senior Securities. None 
 Item 4. Submission of Matters to a Vote of Security Holders. None 
 Item 5. Other Information. In the second quarter of Fiscal 2004, the Company received notice from
the Internal Revenue Service that the Fiscal 2002 year was to be
audited. The Company engaged KPMG, LLP to help the Company manage the
audit process. On January 27, 2004, the Company and Marshall Sorokwasz, Chairman of
the Board and CEO, executed and employment agreement for a period of
five years from February 1, 2004 to January 31, 2009. See Exhibit 10(f)
filed with this report. 
 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits to Part 1. Exhibit No.
    
    Description of Exhibits10(f)
    
    Employment Agreement dated January 27, 2004,
between the Company and Marshall Sorokwasz31.1
    
    Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 16




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Exhibit No.
    
    Description of Exhibits31.2
    
    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.
 (b) Reports on Form 8-K and 8-K /A None 17




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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 14, 2004 Impreso, Inc.
(Registrant)/s/ Marshall D. SorokwaszMarshall D. SorokwaszChairman of the Board, Chief

Executive Officer, President,

and Director /s/ Susan M. AtkinsSusan M. AtkinsChief Financial Officer

and Vice President 18




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Exhibits  Exhibit No.
    
    Description of Exhibits10(f)
    
    Employment Agreement dated January 27, 2004,
between the Company and Marshall Sorokwasz31.1
    
    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.
 19