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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the quarterly period ended November 30, 2005
  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
    
    75-2849585(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 652 Southwestern Boulevard
Coppell, Texas 75019
 (972) 462-0100
 þ o
 o þ
 o þ
  Class of Common Stock
    
    Shares outstanding at May 17, 2005$0.01 Par Value
    
    5,278,780




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##### 



IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
November 30, 2005
 INDEX
 Page NumberPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements:Interim Condensed Consolidated Balance Sheets as of November 30, 2005
(Unaudited) and August 31, 2005
    
    
    1Interim Condensed Consolidated Statements of Operations for the
Three Months Ended November 30, 2005 and November 30, 2004
(Unaudited)
    
    
    3Interim Condensed Consolidated Statements of Cash Flows for the
Three Months Ended November 30, 2005 and November 30, 2004
(Unaudited)
    
    
    4Notes to Interim Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults upon Senior Securities 20
    
    
    21Item 4.
    
    Submission of Matters to a vote of Security Holders
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    21SIGNATURES
    
    
    22INDEX TO EXHIBITS
    
    
    23Certification 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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INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS IMPRESO, INC. AND SUBSIDIARIES
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
 ASSETS
 November 30,
    
    
    August 31,2005
    
    
    2005Current assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Trade accounts receivable, net of allowance for doubtful accounts of
$1,519,306 as of November 30, 2005 and $1,414,042 as of August 31, 2005
    
    
    8,596,740
    
    
    
    8,996,319Receivable, IRS
    
    
    1,221,532
    
    
    
    1,255,294Inventories, net of reserves
    
    
    15,658,473
    
    
    
    16,753,921Prepaid expenses and other
    
    
    329,656
    
    
    
    217,183Assets held for sale
    
    
    1,278,872
    
    
    
    1,278,872Deferred income tax assets
    
    
    870,093
    
    
    
    828,092Total current assets
    
    
    27,955,366
    
    
    
    29,329,681Property, plant and equipment, at cost
    
    
    27,127,440
    
    
    
    27,174,188Less-Accumulated depreciation
    
    
    (15,091,859
    )
    
    
    (14,784,634
    )Net property, plant and equipment
    
    
    12,035,581
    
    
    
    12,389,554Noncurrent assetsOther assets
    
    
    73,013
    
    
    
    74,183Total assets
    
    $
    40,063,960
    
    
    $
    41,793,418
  1




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IMPRESO, INC. AND SUBSIDIARIES
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
 LIABILITIES AND STOCKHOLDERS EQUITY
 November 30,
    
    
    August 31,2005
    
    
    2005Current liabilities:Accounts payable
    
    $
    7,602,367
    
    
    $
    8,182,928Checks issued in excess of deposits
    
    
    392,339
    
    
    
    Accrued liabilities
    
    
    827,470
    
    
    
    796,834Accrued commissions
    
    
    1,283,522
    
    
    
    954,231Current maturities of long-term debt
    
    
    950,581
    
    
    
    1,718,028Line of credit
    
    
    5,895,003
    
    
    
    6,306,354Current maturities of prepetition debt
    
    
    8,759
    
    
    
    8,684Total current liabilities
    
    
    16,960,041
    
    
    
    17,967,059Deferred income tax liability
    
    
    158,427
    
    
    
    295,016Deferred gain
    
    
    569,141
    
    
    
    611,826Long-term debt, net of current maturities
    
    
    7,356,740
    
    
    
    7,562,876Long-term portion of prepetition debt, net of current maturities
    
    
    209,241
    
    
    
    211,485Total liabilities
    
    
    25,253,590
    
    
    
    26,648,262Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized;
    
    
    
    
    
    
    0 shares issued and outstandingCommon stock, $.01 par value; 15,000,000 shares authorized;
    
    
    52,928
    
    
    
    52,9285,292,780 issued and 5,278,780 outstandingTreasury stock (14,000 shares, at cost)
    
    
    (38,892
    )
    
    
    (38,892
    )Additional paid-in capital
    
    
    6,353,656
    
    
    
    6,353,656Retained earnings
    
    
    8,442,678
    
    
    
    8,777,464Total stockholders equity
    
    
    14,810,370
    
    
    
    15,145,156Total liabilities and stockholders equity
    
    $
    40,063,960
    
    
    $
    41,793,418
  2




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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS IMPRESO, INC. AND SUBSIDIARIES
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedNovember 30,
    
    
    November 30,2005
    
    
    2004Net sales
    
    $
    17,840,693
    
    
    $
    19,976,634Cost of sales
    
    
    16,237,339
    
    
    
    18,996,776Gross profit
    
    
    1,603,354
    
    
    
    979,858Gain on sales of assets
    
    
    (52,798
    )
    
    
    (59,224
    )Embezzlement recovery
    
    
    (25
    )
    
    
    (253,313
    )Selling, General and administrative expenses
    
    
    1,835,024
    
    
    
    2,285,850Operating loss
    
    
    (178,847
    )
    
    
    (993,455
    )Other expenses (income):Interest expense
    
    
    305,372
    
    
    
    238,930Insurance recovery
    
    
    
    
    
    
    (10,000
    )Other expense (income), net
    
    
    22,907
    
    
    
    (69,220
    )Total other expense (income)
    
    
    328,279
    
    
    
    159,710Loss before income tax expense
    
    
    (507,126
    )
    
    
    (1,153,165
    )Income tax (benefit) expense :Current
    
    
    (113,788
    )
    
    
    6,250Deferred
    
    
    (58,551
    )
    
    
    (399,378
    )Total income tax benefit
    
    
    (172,339
    )
    
    
    (393,128
    )Net loss
    
    
    (334,787
    )
    
    
    (760,037
    )Net loss per share (basic and diluted)
    
    $
    (0.06
    )
    
    $
    (0.14
    )Weighted average shares outstanding (basic)
    
    
    5,278,780
    
    
    
    5,278,780Weighted average shares outstanding (diluted)
    
    
    5,286,389
    
    
    
    5,301,493
  3




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INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS IMPRESO, INC. AND SUBSIDIARIES
 INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedNovember 30,2005
    
    
    2004Cash Flows From Operating Activities:Net loss
    
    $
    (334,787
    )
    
    $
    (760,037
    )Adjustments to reconcile net loss to net
cash provided by (used in ) operating activities-Depreciation and amortization
    
    
    366,509
    
    
    
    330,535Bad debt expense
    
    
    105,264
    
    
    
    85,517Decrease in provision of losses of inventory
    
    
    (262
    )
    
    
    (83
    )Gain on sale of property, plant and equipment
    
    
    8,887
    
    
    
    Change in deferred gain on sale of property
    
    
    (42,685
    )
    
    
    (56,914
    )Deferred income tax benefit
    
    
    (58,552
    )
    
    
    (388,358
    )Decrease in trade accounts receivable
    
    
    294,315
    
    
    
    2,700,898Decrease in income tax receivable
    
    
    33,762
    
    
    
    Decrease (increase) in inventory
    
    
    1,095,710
    
    
    
    (5,920,700
    )Increase in prepaid expenses and other
    
    
    (112,473
    )
    
    
    (75,810
    )Decrease in noncurrent assets
    
    
    1,170
    
    
    
    (Decrease) increase in accounts payable
    
    
    (188,222
    )
    
    
    1,056,743Increase in accrued liabilities
    
    
    239,889
    
    
    
    119,060Net cash provided by (used in) operating activities
    
    
    1,408,525
    
    
    
    (2,909,149
    )Cash Flows From Investing Activities:Additions to property, plant and equipment
    
    
    (21,422
    )
    
    
    (328,817
    )Net cash used in investing activities
    
    
    (21,422
    )
    
    
    (328,817
    )Cash Flows From Financing Activities:Net (payments) borrowings on line of credit
    
    
    (411,351
    )
    
    
    3,808,967Payments on prepetition debt
    
    
    (2,169
    )
    
    
    (2,079
    )(Payments) borrowings on post-petition debt
    
    
    (973,583
    )
    
    
    30,437Net cash (used in) provided by financing activities
    
    
    (1,387,103
    )
    
    
    3,837,325Net Increase in cash and cash equivalents
    
    
    
    
    
    
    599,359Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    173,313Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    772,672
  4




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IMPRESO, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1.
    
    ORGANIZATION AND NATURE OF BUSINESS
  2.
    
    INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   3.
    
    NEW ACCOUNTING PRONOUNCEMENTS
  5




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4.
    
    RECLASSIFICATIONS
  5.
    
    INVENTORIES
  6




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November 30, 2005
    
    
    August 31, 2005Finished goods
    
    $
    9,794,023
    
    
    $
    9,408,114Raw materials
    
    
    5,132,712
    
    
    
    6,327,885Supplies
    
    
    1,078,987
    
    
    
    1,385,293Work-in-process
    
    
    115,093
    
    
    
    95,233Allowance for obsolete inventory
    
    
    (462,342
    )
    
    
    (462,604
    )Total
    
    $
    15,658,473
    
    
    $
    16,753,921
 6. ACCOUNTING FOR LONG-LIVED ASSETS
    7. LONG-TERM DEBT AND LINE OF CREDIT :
 The following is a summary of long-term debt and line of credit:
    
    November 30,
    
    
    August 31,2005
    
    
    2005Line of Credit with a commercial financial corporation under
revolving credit line, Maturing November 2007, secured by
inventories, trade accounts receivable, equipment, and goodwill
associated with TSTs trademark IMPRESO (no value on
financial statements), interest payable monthly at prime plus
0.25% (7% and 6.50%, as of November 30, 2005 and August 31,
2005, respectively).
    
    $
    5,895,003
    
    
    $
    6,306,354Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$4,457 (including interest at 7.25%), maturing November 2008.
    
    
    178,633
    
    
    
    184,645Note 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.
    
    
    497,657
    
    
    
    511,580Note 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.
    
    
    146,004
    
    
    
    149,972
 7




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##### Table of Contents



The following is a summary of long-term debt and line of credit:
    
    November 30,
    
    
    August 31,2005
    
    
    2005Notes payable to various commercial financial corporations,
secured by equipment, interest rates ranging from 5.25% to
13.8%, maturing at various dates from September 2004 through
July 2008.
    
    
    85,231
    
    
    
    96,428Notes 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 $13,761 (including interest at 8%),
maturing March 2011. On August 31, 2005, a portion of the
collateral was sold and the proceeds were applied to the loan
to reduce the principal balance.
    
    
    1,170,580
    
    
    
    1,182,378Note payable to a commercial financial corporation, secured by
real property, payable in monthly installments of $40,454.51,
including interest at prime plus 1.125% with a cap of 7.5%
(7.5% as of November 30, 2005 and August 31, 2005) maturing
September 2009.
    
    
    4,282,737
    
    
    
    4,318,812Note 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, (7.14% and 6.7%, respectively as of November 30,
2005 and August 31, 2005), maturing February 2009.
    
    
    714,286
    
    
    
    767,857Acquisition notes payable, unsecured, payable in monthly
installments of $16,666, no interest, maturing February 2007.
    
    
    249,927
    
    
    
    296,463Capital lease payable to a commercial financial corporation,
secured by equipment, payable in monthly installments of
$17,910, including interest at 8.5%, maturing October 2011. In
October 2005, a portion of the collateral, a letter of credit,
was applied to the lease to reduce the principal balance.
    
    
    982,266
    
    
    
    1,772,769Prepetition-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.
    
    
    218,000
    
    
    
    220,169Total
    
    
    14,420,324
    
    
    
    15,807,427Less Current Maturities
    
    
    (6,854,343
    )
    
    
    (8,033,066
    )Long-Term Debt
    
    $
    7,565,981
    
    
    $
    7,774,361
   8




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8. SUPPLEMENTAL CASH FLOW INFORMATION
 Three Months ended
    
    November 30, 2005
    
    
    November 30, 2004Cash paid during the period for:Interest
    
    
    305,372
    
    
    
    238,930Income taxes
    
    
    2,866
    
    
    
    93,801
  9. STOCK OPTIONS
    Options Outstanding
 Weighted Average#
    
    
    
    Aggregate Intrinsic
    
    
    Weighted Average
    
    
    RemainingOptions
    
    
    

Value
    
    

Exercise
Price
    
    

Contractual
LifeOptions
Outstanding
    
    
    144,000
    
    
    
    
    350,931
    
    
    
    3.16
    
    
    
    1.6Options
Exercisable
    
    
    140,000
    
    
    
    
    346,970
    
    
    
    3.20
    
    
    
    3.95
 9




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Accounting for Stock Issued to Employees Accounting for Stock-based Compensation Accounting for Stock Based
CompensationTransition and Disclosure.
    November 30,
    
    
    November 30,Three Months Ended
    
    2005
    
    
    2004Reported Net Loss
    
    $
    (334,787
    )
    
    $
    (760,037
    )Total Stock-based employee compensation expense
included in the determination of reported net income
    
    
    415
    
    
    
    Total Stock-based employee compensation expense
determined under fair value based method for all awards
    
    
    415
    )
    
    
    (719
    )Pro forma net loss for calculation of diluted earnings per share
    
    $
    (334,787
    )
    
    $
    (760,756
    )Earnings per common share:Basic  As reported
    
    $
    (0.6
    )
    
    $
    (0.14
    )Basic  Pro forma
    
    $
    (0.6
    )
    
    $
    (0.14
    )Diluted  As reported
    
    $
    (0.6
    )
    
    $
    (0.14
    )Diluted  Pro forma
    
    $
    (0.6
    )
    
    $
    (0.14
    )
 10




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10. LEGAL MATTERS
        11




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11. SUBSEQUENT EVENTS
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
         12




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13




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Three Months Ended
    
    
    Three Months EndedNovember 30, 2005
    
    
    November 30, 2004AMOUNT
    
    
    PERCENT
    
    
    AMOUNT
    
    
    PERCENTNET SALES BY INDUSTRY
SEGMENTHardcopy imaging products
    
    $
    17,557,481
    
    
    
    98.4
    %
    
    $
    19,976,634
    
    
    
    100.00
    %Bottled water
    
    $
    283,212
    
    
    
    1.6
    %
    
    $
    0
    
    
    
    0.00
    %Total
    
    $
    17,840,693
    
    
    
    100.00
    %
    
    $
    19,976,634
    
    
    
    100.00
    %PRE TAX (LOSS) PROFIT
FROM CONTINUING
OPERATIONSHardcopy imaging products
    
    $
    (365,812
    )
    
    
    72.1
    %
    
    $
    (1,153,165
    )
    
    
    100.00
    %Bottled water
    
    $
    (141,314
    )
    
    
    27.9
    %
    
    $
    0
    
    
    
    0.00
    %Total
    
    $
    (507,126
    )
    
    
    (100.00
    )%
    
    $
    (1,153,165
    )
    
    
    100.00
    %
 As Of November 30, 2005
    
    
    As Of August 31, 2005TOTAL ASSETS BY INDUSTRY
SEGMENTHardcopy imaging products
    
    $
    37,405,489
    
    
    
    93.4
    %
    
    $
    39,043,670
    
    
    
    93.4
    %Bottled water
    
    $
    2,658,471
    
    
    
    6.6
    %
    
    $
    2,749,748
    
    
    
    6.6
    %Total
    
    $
    40,063,960
    
    
    
    100.00
    %
    
    $
    41,793,418
    
    
    
    100.00
    %
 Results of Operations for the Interim Periods Ended November 30, 2005 and November 30, 2004.
  14




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15




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Liquidity and Capital Resources
          16




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17




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18




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Seasonality
    19




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Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4. Controls and Procedures
    
 PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  20




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 Item 3. Defaults upon Senior Securities.
 
 Item 4. Submission of Matters to a Vote of Security Holders.
 
 Item 5. Other Information.
 
 Item 6. 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.
 21




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SIGNATURES
   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
 22




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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.
 23