##### Table of Contents



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 1934For the quarterly period ended November 30, 2004
 OR o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period  to
 Commission File Number 000-29883 Impreso, Inc.  Delaware
    
    75-2849585(State or other jurisdiction of
incorporation or organization)
    
    (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 January 14, 2005$0.01 Par Value
    
    5,278,780




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IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
November 30, 2004 INDEX PART I.FINANCIAL INFORMATION
    
    Page NumberItem 1.
    
    Condensed Consolidated Financial Statements:Interim Condensed Consolidated Balance Sheets as of November 30, 2004 (Unaudited) and August 31, 2004
    
    
    1Interim Condensed Consolidated Statements of Operations for the Three Months Ended November 30, 2004 and 2003 (Unaudited)
    
    
    3Interim Condensed Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2004 and 2003 (Unaudited)
    
    
    4Notes to Interim Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4.
    
    Controls and Procedures
    
    
    15PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    15Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases Of Equity Securities
    
    
    15Item 3.
    
    Defaults upon Senior Securities
    
    
    15Item 4.
    
    Submission of Matters to a vote of Security Holders
    
    
    16Item 5.
    
    Other Information
    
    
    16Item 6.
    
    Exhibits
    
    
    16SIGNATURES
    
    
    17INDEX TO EXHIBITS
    
    
    18Certification 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) November 30,
    
    
    August 31,2004
    
    
    2004Current assets:Cash and cash equivalents
    
    $
    772,672
    
    
    $
    173,313Trade accounts receivable, net of allowance for doubtful accounts
of $1,215,832 at November 30, 2004 and $1,130,315 as of August 31, 2004
    
    
    9,880,018
    
    
    
    12,666,433Inventories
    
    
    28,564,341
    
    
    
    22,643,558Prepaid expenses and other
    
    
    361,114
    
    
    
    330,039Assets held for sale
    
    
    2,141,289
    
    
    
    Deferred income tax assets
    
    
    1,144,439
    
    
    
    736,810Total current assets
    
    
    42,863,873
    
    
    
    36,550,153Property, plant and equipment, at cost
    
    
    26,619,199
    
    
    
    29,417,303Less-Accumulated depreciation
    
    
    (13,640,617
    )
    
    
    (14,295,714
    )Net property, plant and equipment
    
    
    12,978,582
    
    
    
    15,121,589Noncurrent assetsOther assets
    
    
    126,513
    
    
    
    81,778Deferred income tax assets
    
    
    300,218
    
    
    
    318,718Total noncurrent assets
    
    
    426,731
    
    
    
    400,496Total assets
    
    $
    56,269,186
    
    
    $
    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) November 30,
    
    
    August 31,2004
    
    
    2004Current liabilities:Accounts payable
    
    $
    13,768,501
    
    
    $
    12,711,758Accrued liabilities
    
    
    1,032,035
    
    
    
    987,921Accrued commissions
    
    
    1,938,644
    
    
    
    1,863,698Current maturities of long-term debt
    
    
    1,437,507
    
    
    
    1,407,070Line of credit
    
    
    9,034,813
    
    
    
    6,851,479Current maturities of prepetition debt
    
    
    8,459
    
    
    
    8,384Total current liabilities
    
    
    27,219,959
    
    
    
    23,830,310Deferred income tax liability
    
    
    999,501
    
    
    
    998,730Deferred gain
    
    
    739,882
    
    
    
    796,796Long-term debt, net of current maturities
    
    
    9,796,861
    
    
    
    8,171,228Long-term portion of prepetition debt, net of current maturities
    
    
    218,535
    
    
    
    220,689Total liabilities
    
    
    38,974,738
    
    
    
    34,017,753Stockholders 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
    
    
    10,926,756
    
    
    
    11,686,793Total stockholders equity
    
    
    17,294,448
    
    
    
    18,054,485Total liabilities and stockholders equity
    
    $
    56,269,186
    
    
    $
    52,072,238
 The accompanying notes are an integral part of the condensed consolidated financial statements 2




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IMPRESO, INC. AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three Months EndedNovember 30,
    
    
    November 30,2004
    
    
    2003Net sales
    
    $
    19,976,634
    
    
    $
    26,726,715Cost of sales
    
    
    18,996,776
    
    
    
    23,345,954Gross profit
    
    
    979,858
    
    
    
    3,380,761Selling, General and administrative expenses
    
    
    2,285,850
    
    
    
    2,281,994Operating (loss) Income
    
    
    (1,305,992
    )
    
    
    1,098,767Other expenses (income):Interest expense
    
    
    238,930
    
    
    
    337,014Insurance recovery
    
    
    (263,313
    )Gain on sale of assets
    
    
    (59,224
    )Other income, net
    
    
    (69,220
    )
    
    
    (6,869
    )Total other (income) expense
    
    
    (152,827
    )
    
    
    330,145(Loss) income before income tax expense
    
    
    (1,153,165
    )
    
    
    768,622Income tax (benefit) expense:Current
    
    
    6,250
    
    
    
    315,723Deferred
    
    
    (399,378
    )
    
    
    (29,317
    )Total income tax (benefit) expense
    
    
    (393,128
    )
    
    
    286,406Net (loss) income
    
    
    (760,037
    )
    
    $
    482,216Net (loss) income per share (basic and diluted)
    
    $
    (0.14
    )
    
    $
    0.09Weighted average shares outstanding
    
    
    5,278,780
    
    
    
    5,278,780
 The accompanying notes are an integral part of the condensed consolidated financial statements. 3




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IMPRESO, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months EndedNovember 30,2004
    
    
    2003Cash Flows From Operating Activities:Net (loss) income
    
    $
    (760,037
    )
    
    $
    482,216Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities-
Depreciation and amortization
    
    
    330,535
    
    
    
    356,670Provision for Losses of Receivables
    
    
    85,517
    
    
    
    143,298Gain on sale of property, plant and equipment
    
    
    (56,914
    )
    
    
    Deferred income taxes
    
    
    (388,358
    )
    
    
    (29,317
    )Decrease (Increase) in trade accounts receivable
    
    
    2,700,898
    
    
    
    (36,986
    )(Increase) Decrease in inventory
    
    
    (5,920,783
    )
    
    
    5,009,437(Increase) in prepaid expenses and other
    
    
    (75,810
    )
    
    
    (137,263
    )Increase (Decrease) in accounts payable
    
    
    1,056,743
    
    
    
    (1,791,227
    )Increase in accrued liabilities
    
    
    119,060
    
    
    
    808,011Net cash provided by (used in) operating activities
    
    
    (2,909,149
    )
    
    
    4,804,839Cash Flows From Investing Activities:Additions to property, plant and equipment
    
    
    (328,817
    )
    
    
    (28,337
    )Net cash used in investing activities
    
    
    (328,817
    )
    
    
    (28,337
    )Cash Flows From Financing Activities:Net borrowings (repayments) on line of credit
    
    
    3,808,967
    
    
    
    (4,426,441
    )Principal payments on prepetition debt
    
    
    (2,079
    )
    
    
    (1,997
    )Principal (borrowings) payments on post-petition debt
    
    
    30,437
    
    
    
    (225,175
    )Net cash provided by (used in) financing activities
    
    
    3,837,325
    
    
    
    (4,653,613
    )Net Increase in cash and cash equivalents
    
    
    599,359
    
    
    
    122,889Cash and cash equivalents, beginning of period
    
    
    173,313
    
    
    
    95,129Cash and cash equivalents, end of period
    
    $
    772,672
    
    
    $
    218,018
 The accompanying notes are an integral part of the condensed consolidated financial statements. 4




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IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 1.ORGANIZATION AND NATURE OF BUSINESS Impreso, Inc., a Delaware corporation (referred to collectively with its subsidiaries as the
Company), is the parent holding company of TST/Impreso, Inc. (TST), a manufacturer and
distributor to dealers and other resellers of paper and film products for commercial and home use
in domestic and international markets, Hotsheet.com, Inc., the owner and operator of the
Hotsheet.com web portal, and Alexa Springs, Inc. a natural spring water bottler. Currently, TST has
one wholly owned subsidiary, TST/Impreso of California, Inc., which was formed to support the
activities of the paper converting segment of the Companys business. 2.INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the unaudited Interim Condensed Consolidated Financial Statements of
the Company include all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the Companys financial position as of November 30, 2004, and its results of
operations for the three months ended November 30, 2004 and November 30, 2003. Results of the
Companys operations for the interim period ended November 30, 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 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. The Company currently does not intend to change to
the fair value based method of accounting for stock-based compensation, but will adhere to the
disclosure requirements of the Statement. The Company adopted the disclosure requirements for the
third quarter of Fiscal 2003. In January 2003, the FASB issued Interpretation 46 (FIN 46), Consolidation of Variable Interest
Entities, an Interpretation of ARB 51, which expands upon and strengthens existing accounting
guidance concerning when a company should include in its financial statements the assets,
liabilities and activities of another entity. A variable interest entity (VIE) does not share
economic risk and reward through typical equity ownership arrangements; instead, contractual or
other relationships distribute economic risks and rewards among equity holders and other parties.
Once an entity is determined to be a VIE, the party with the 5




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controlling financial interest, the
primary beneficiary, is required to consolidate it. FIN 46 also requires disclosures about VIEs
that the Company is not required to consolidate but in which it has a significant variable
interest. The adoption of this statement did not have a material impact on the Companys
consolidated financial statement. In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS 149 is effective for contracts entered
into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003.
The adoption of this statement did not have any impact on the Companys consolidated financial
position or results of operations. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This statement establishes standards for how an
issuer classifies and measures in its balance sheet certain financial instruments with
characteristics of both liabilities and equity. In accordance with the standard, a financial
instrument that embodies an obligation for the issuer is required to be classified as a liability
(or an asset in some circumstances). SFAS 150 is effective for financial statements entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this statement did not have any impact on
the Companys consolidated financial position and results of operations. In November 2004, FASB issued SFAS No, 151 Inventory Costs, an Amendment of ARB No.43 Chapter 4
(FAS 151). FAS 151 requires that items such as idle facility expense, excessive spoilage, double
freight, and rehandling be recognized as current-period charges rather than being included in
inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. FAS
151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005,
The Company will adopt this standard beginning the first quarter of fiscal year 2006 and does not
believe the adoption will have a material impact on its financial statements as such costs have
historically been expensed as incurred. In December 2004, the Financial Account Standards Board (FASB) issued SFAS No, 153, Exchanges of
Nonmonetary Assets  an amendment of APB Opinion No. 29 which addresses the measurement of
exchanges of nonmonetary assets and eliminates the exception from fair value accounting for
nonmonetary 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 nonmonetary 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 SPAS No., 123 (Revised 2004) Share-Based Payment: an Amendment of
FASB Statements No. 123 and 95 (FAS l23R). FAS l23R sets accounting requirements for
share-based compensation to employees, requires companies to recognize in the income statement
the grant-date fair value of stock options and other equity-based compensation issued to employees
and disallows the use of the intrinsic value method of accounting for stock compensation. FAS l23R
is applicable for all interim and fiscal periods beginning after
June 15, 2005. This statement is
effective for the Company beginning the first quarter of fiscal year 2006 and is not expected to
have a significant impact on its financial statements. 4.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. 6




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Inventories consisted of the following: November 30,
    
    
    August 31,2004
    
    
    2004Finished goods
    
    $
    12,999,004
    
    
    $
    11,920,405Raw materials
    
    
    14,635,452
    
    
    
    9,866,736Supplies
    
    
    1,121,308
    
    
    
    1,047,748Work-in-process
    
    
    117,221
    
    
    
    117,396Allowance for obsolete inventory
    
    
    (308,644
    )
    
    
    (308,727
    )Total
    
    $
    28,564,341
    
    
    $
    22,643,558
 5.ACCOUNTING FOR LONG-LIVED ASSETS In March 2004, the Company began a lease with an unrelated party for a warehouse and manufacturing
facility in Chambersburg, Pennsylvania. Due to the additional warehouse and manufacturing capacity
resulting from the new lease, as of November 30, 2004, the Company no longer utilizes buildings
located in Kearneysville, West Virginia and Greencastle, Pennsylvania, and is attempting to locate
buyers for these facilities. For the three month period ended November 30, 2004, the Company ceased depreciating the buildings
and building improvements and has reclassified the net book value of the land, building and
building improvements in the amount of $2.1 million to assets held for sale. The Company 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. 6.LONG-TERM DEBT AND LINE OF CREDIT: The following is a summary of long-term debt and line of credit:
    
    November 30
    
    
    August 31,2004
    
    
    2004Line of Credit with a commercial financial corporation under
revolving credit line, maturing November 2005, secured by
inventories, trade accounts receivable, equipment, and goodwill
associated with TSTs trademark IMPRESO (no value on
financial statements), interest payable monthly at prime plus
the applicable prime rate margin (4.75% and 4.25%,
respectively, as of November 30, 2004 and August 31, 2004).
    
    $
    9,034,813
    
    
    $
    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.
    
    
    212,559
    
    
    
    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.
    
    
    577,076
    
    
    
    599,536
 7




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Note 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.
    
    
    169,885
    
    
    
    175,978Notes payable to various commercial financial corporations,
secured by equipment, interest rates ranging from 5.25% to
13.8%, maturing at various dates from September 2003 through
July 2008.
    
    
    105,714
    
    
    
    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.
    
    
    1,918,880
    
    
    
    1,944,381Acquisition note payable, unsecured, payable in quarterly
installments of $15,000 (including interest at 8%), maturing
April 2006. (See Form 10-K, Second Paragraph, Footnote 8)
    
    
    225,000
    
    
    
    225,000Acquisition note payable, secured by equipment, payable in
monthly installments of $16,024, no interest, matured May 2003.
(See Form 10-K, Second Paragraph, Footnote 8)
    
    
    352,145
    
    
    
    352,145Note payable to a commercial financial corporation, secured by
real property and a personal guarantee by the trustee of a
trust which is a principal stockholder of the Company, payable
in monthly installments of $22,827 (including a fixed schedule
for interest, 6% at August 31, 2004). On September 22, 2004,
this note was combined with a construction note. The note
executed September 22, 2004, relinquished the personal
guarantee, is payable in monthly installments of $12,377.85, including interest at prime plus 1.125% with a cap of 7.5%
(6.125% at November 30, 2005) maturing September 2009.
    
    
    4,438,925
    
    
    
    3,085,043Note payable to a commercial financial corporation, secured by
equipment, payable in monthly installments of $17,857,
including interest at a variable rate equal to 30 day LIBOR
plus 350 basis points, (5.25% at November 30, 2004 and 4.5% at
August 31, 2004), maturing February 2009.
    
    
    928,572
    
    
    
    982,143Acquisition notes payable, unsecured, payable in monthly
installments of $16,666, maturing February 2007.
    
    
    432,635
    
    
    
    476,905Construction note payable to a commercial financial
corporation, secured by real property, payable in monthly
installments of interest only, at 6 %, consolidated into new
loan executed September 22, 2004, combined with balance of
existing mortgage on the real property. Interest on the new
combined loan will be prime plus 1.125%, capped at 7.5%,
maturing 5 years from date of execution.
    
    
    -0-
    
    
    
    1,375,059Financing lease payable to a commercial financial corporation,
secured by equipment, payable in monthly installments of
$28,320, including interest at 8.51%, maturing October 2011.
    
    
    1,872,978
    
    
    
    -0-Prepetition-
 8




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Note payable to a commercial financial corporation, secured by
real property and equipment and a personal guarantee by the
trustee of a trust which is a principal stockholder of the
Company, payable in monthly installments of $1,461 (including
interest at 4%), maturing April 2008.
    
    
    226,994
    
    
    
    229,073Total
    
    
    20,496,176
    
    
    
    16,658,850Less Current Maturities
    
    
    (10,480,779
    )
    
    
    (8,266,933
    )Long-Term Debt
    
    $
    10,015,397
    
    
    $
    8,391,917
 Prepetition amount listed above represents the renegotiated amounts and terms under the 1993 plan
of reorganization. In December 2004, TST amended its revolving line of credit to increase the line from $10 million to
$15 million. The amended revolving credit line is limited to the lesser of $15 million or a
percentage of eligible trade accounts receivable and inventories, as defined. The remaining
availability under the revolving credit line was $985,000 as of November 30, 2004. The line of credit, as amended, has a restrictive covenant requiring the maintenance of a minimum
tangible net worth, as defined in the agreement. One of the notes payable contains restrictive
covenants on current and debt to worth ratio, and the payment of cash dividends. As of November
30, 2004, the Company was in compliance with all covenants. 7.SUPPLEMENTAL CASH FLOW INFORMATION Three Months ended November 30,Cash paid during the period for:
    
    2004
    
    
    2003Interest
    
    $
    238,930
    
    
    $
    337,014Income taxes
    
    $
    93,801
    
    
    $
    8,269
 During the three months ended November 30, 2004, 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. 8.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. 9




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Three Months ended November 30,Pro forma impact of fair value method
    
    2004
    
    
    2003Reported net (loss) income
    
    
    (760,037
    )
    
    
    482,216Less: fair value impact of employee
stock options
    
    
    742
    
    
    
    1,200Pro Forma net (loss) income
    
    
    (760,779
    )
    
    
    481,016Earnings per common shareBasic-as reported
    
    $
    (0.14
    )
    
    $
    0.09Diluted-as reported
    
    $
    (0.14
    )
    
    $
    0.09Basic-pro forma
    
    $
    (0.14
    )
    
    $
    0.09Diluted-pro forma
    
    $
    (0.14
    )
    
    $
    0.09Weighted average Black-Scholes fair
value assumptionsRisk free interest rate
    
    
    3.10
    %
    
    
    5.23
    %Expected life
    
    5 years
    
    5 yearsExpected volatility
    
    
    70.5
    %
    
    
    80
    %Expected dividend yield
    
    
    -0-
    
    
    
    -0-
 9.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 for arbitration by generally denying TSTs claims and asserting a
counterclaim seeking to recover disputed accounts receivable and damages related to TSTs alleged
interference with the vendors relationship with its lender. The Trial has been moved to September
2005. TST is a defendant in a suit filed in Fiscal 2003 for the collection of sums due under two
promissory notes. The liability of $577,145 is included on the Companys balance sheet as long
term debt. TST prevailed in its motion to stay the adversary proceeding and to compel arbitration
in Dallas, Texas under the terms of the parties purchase agreement. No date for arbitration has
been set. TST asserts that liability does not exist because of fraud and contractual breaches in
connection with the agreements. In April 2004, TST filed a lawsuit in the 68th judicial district of Dallas County
against two former
outside sales representatives and a competitor, alleging breach of fiduciary duty, tortious
interference with existing and prospective business relations, and civil conspiracy. The lawsuit
seeks to enforce the duties of loyalty owed to TST by its sales agents, and also protect TST from
any unfair business practices of TSTs competitors. The competitor filed a counter claim
alleging
business disparagement and tortious interference with existing and
prospective business relations. The parties to the litigation are actively conducting discovery. On July 9, 2004, TST received a Preference Claim demand from the Trustee of the estate a former
customer in the amount of $1.2 million. No suit has been filed to date. This demand is a gross
preference demand and the Company believes subsequent to a full preference analysis and the
Companys utilization of 10




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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. On November 30, 2004, TST filed a lawsuit in the Dallas County Judicial District against a company
that operated as our customer and as a vendor, alleging breach of contract seeking to collect an
outstanding accounts receivable and against an employee of the company alleging libel and slander.
The defendant was allowed an extension to file its answer. 10.Subsequent Events As a result of the loss of key customers representing sales of approximately 29%, or $30 million,
of Fiscal 2004 revenue, in January 2005, 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 and
payroll; 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. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations CRITICAL ACCOUNTING POLICIES The accounting policies described below is those the Company considers critical in preparing its
consolidated financial statements. These are policies require the application of significant
judgment by management in selecting the appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These
judgments are based on historical experience, the Companys observation of trends in the industry,
information provided by customers and information available from other outside sources, as
appropriate and available at the time the estimates are made. However, as described below, these
estimates could change materially if different information or assumptions were used. The Company
believes that of its significant accounting policies, the following may involve a higher degree of
judgment or estimation than other accounting policies. Accounts Receivable (doubtful accounts) Reserves The Company provides for losses on accounts receivable based upon their current status, historical
experience and managements evaluation of existing economic conditions. Significant changes in
customer profitability or general economic conditions may have a significant effect on the
Companys allowance for doubtful accounts. Revenue Recognition TSTs sales are recorded when products are shipped to customers. TST is reasonably assured a
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. For the three 11




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months ended
November 30, 2004, Alexa Springs, Inc. had not generated sales. 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. 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
monthly to reflect increases and decreases in each customers sales and payments of commissions and
rebates. Contingent liabilities. The Company is subject to lawsuits, investigations and other claims related to wage and hour/labor,
securities, environmental, product and other matters, and is required to assess the likelihood of
any adverse judgments or outcomes to these matters as well as potential ranges of probable losses.
A determination of the amount of reserves required, if any, for these contingencies is made when
losses are determined to be probable and after considerable analysis of each 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 November 30, 2004 and November 30, 2003. Net SalesNet sales decreased from $26.7 million in the three months ended November 30, 2003
(First Quarter 2004) to $20 million in the three months ended November 30, 2004 (First Quarter
2005) , a decrease of $ 6.7 million or 25.3%. Net sales decreased in First Quarter 2005, as
compared to the corresponding period of the prior year, as a result of the loss of key customers. Gross Profit- Gross profit decreased from $3.4 million in the First Quarter 2004 to $980,000 in
First Quarter 2005, a decrease of 71%. Gross profit margin for First Quarter 2005, decreased to 4.9
% as compared to 12.6% for First Quarter 2004. The decrease in gross profit and gross profit margin
for First Quarter 2005 is a result of higher raw material costs and the loss of key customers. Selling, General, and Administrative ExpensesSG&A expenses remained stable at $2.3 million in
First Quarter 2004 and 2005. SG&A expenses as a percentage of net sales increased from 8.5% in the
First Quarter 2004 to 11.4% in the First Quarter 2005. The increase in SG&A as a percentage of
sales for First Quarter 2005, is due to the decrease in net sales. Interest ExpenseInterest expense decreased from $337,000 in First Quarter 2004, to 239,000 in
the First Quarter 2005. The decrease of 29% is due to the reduction of inventories which reduced
our borrowings under our line of credit and the sale of the California buildings in April 2004. Income Taxes- Income tax expense decreased from $286,000 in First Quarter 2004 to a tax benefit
of $393,000 in the First Quarter 2005. The decrease in income tax expense for First Quarter 2005,
as compared 12




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to the corresponding period of the prior year is a result of the decrease in net
income. Liquidity and Capital Resources Working capital increased to $15.6 million as of November 30, 2004, from $12.7 million at August
31, 2004. This represented an increase of 23%. Effective December 14, 2004, TST amended its loan agreement with a commercial financial corporation
to increase its available borrowings under its line of credit. The amended agreement provides for
a $15 million line of credit and an inventory sub-limit of $15 million. The amended loan is
secured by, among other things, inventory, trade receivables, and equipment. Available borrowings under this line of credit, are based upon specified percentages of eligible
accounts receivable and inventories. As of November 30, 2004, we did not have adequate capital
available to operate our business, and therefore expanded our revolving line of credit from $10
million to $15 million. We believe that the funds available under the loans encumbering our Texas, Pennsylvania, Illinois
and West Virginia plants, the revolving credit facility, cash and cash equivalents, trade credit
and internally generated funds will be sufficient to satisfy our requirements for working capital
and capital expenditures for at least the next twelve months. Such belief is based on certain
assumptions, including the continuation of current operations and no extraordinary adverse events,
and there can be no assurance that such assumptions are correct. In addition, expansion of our
operations due to an increased demand for products TST manufactures or significant growth of
Hotsheet.com, Inc., or Alexa Springs, Inc., our water bottling subsidiary, 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 November 30, 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. 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 the past inventory levels had been increased
to facilitate the introduction of new brands and expanded product lines. From July 2004, our
inventory began gradually increasing due to decreasing sales and our receipt of raw materials
ordered in advance due to extended international shipping timeframes. 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. 13




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Market Conditions The primary product produced by the Company is continuous feed business forms. Competitors in the
marketplace have aggressively solicited existing TST customers. Management believes that the market for business forms, as well as its share of the market, will
continue to decline in Fiscal 2005. As a result of the loss of key customers representing sales of approximately 29%, or $30 million,
of Fiscal 2004 revenue, in January 2005, 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 and payroll;
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. 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
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. Seasonality TST may be subject to certain seasonal fluctuations in that orders for products may decline over
the summer months. If the market for finished goods decreases, then the adverse impact of the
seasonal fluctuations on the Company will be greater. Hotsheet.com revenues are partially generated by retail sales which are typically stronger during
the Christmas holiday season. The bottled water business is subject to seasonal fluctuations with its demand cycle greatest in
summer months. Forward-Looking Statements 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 14




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projected, including availability
of raw materials, availability of thermal facsimile, computer, laser and color ink jet paper, to
the cyclical nature of the industry in which we operate, the potential of technological changes
which would adversely affect the need for our products, price fluctuations which could adversely
impact the inventory we require, loss of any significant customer, and termination of contracts
essential to our business. Parties are cautioned not to rely on any such forward-looking
statements or judgments in making investment decisions. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk We are not exposed to market risks such as foreign currency exchange rates, but are exposed to
risks such as variable interest rates. Market risk is the potential loss arising from adverse
changes in market prices and rates. Our subsidiaries do not have supply contracts with any of
their foreign vendors. All foreign vendors are paid in United States currency. In addition,
TSTs international sales of finished goods are insignificant. Accordingly, there are not
sufficient factors to create a material foreign exchange rate risk; therefore, we do not use
exchange commitments to minimize the negative impact of foreign currency fluctuations. We had both fixed-rate and variable-rate debts as of November 30, 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 November 30, 2004, there
was no material exposure to our financial position or results of operations. 
 Item 4. Controls and Procedures Evaluation of controls and procedures Within the 90 days prior to the date of this report, the Company carried out an evaluation, under
the supervision and with the participation of the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the
Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys
amendments to its disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated subsidiaries) required to
be included in the Companys periodic SEC filings. No material changes to controls have occurred in
the current quarter. 
 PART II: OTHER INFORMATION 
 Item 1. Legal Proceedings. See note 9 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 15




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Item 4. Submission of Matters to a Vote of Security Holders. None 
 Item 5. Other Information. As a result of the loss of key customers representing sales of approximately 29%, or $30 million,
of Fiscal 2004 revenue, in January 2005, 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 and payroll;
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. 
 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.
 16




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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: January 14, 2005 Impreso, Inc.
(Registrant)/s/ Marshall D. Sorokwasz
Marshall D. Sorokwasz
Chairman of the Board, Chief
Executive Officer, President,
and Director/s/ Susan M. Atkins
Susan M. Atkins
Chief Financial Officer
and Vice President
 17




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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.
 18