e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended February 28, 2006


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.

(Exact name of registrant as specified in its charter)


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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

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, $0.01 Par Value, shares outstanding at April 11, 2006: 5,278,780.

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
(Unaudited)


	February 28,			August 31,
	2006			2005
Current assets:
Trade accounts receivable, net of allowance for doubtful accounts of $1,291,540 as of February 28, 2006 and $1,414,042 as of August 31, 2005	$	6,917,036		$	8,996,319
Receivable, IRS		1,221,532			1,255,294
Inventories, net of reserves		15,417,127			16,753,921
Prepaid expenses and other		311,808			217,183
Assets held for sale		1,278,872			1,278,872
Deferred income tax assets		782,860			828,092


Total current assets		25,929,235			29,329,681


Property, plant and equipment, at cost		27,157,646			27,174,188
Less-Accumulated depreciation		(15,453,203	)		(14,784,634	)


Net property, plant and equipment		11,704,443			12,389,554


Noncurrent assets
Other assets		71,842			74,183
Deferred income tax assets		218,241			—


Total noncurrent assets		290,083			74,183


Total assets	$	37,923,761		$	41,793,418

The accompanying notes are an integral part of the condensed consolidated financial statements

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDERS’ EQUITY
(Unaudited)


	February 28,			August 31,
	2006			2005
Current liabilities:
Accounts payable	$	7,507,094		$	8,182,928
Accrued liabilities		722,360			796,834
Accrued commissions		710,820			954,231
Current maturities of long-term debt		1,308,134			1,718,028
Line of credit		5,972,418			6,306,354
Current maturities of prepetition debt		8,834			8,684


Total current liabilities		16,229,660			17,967,059

Deferred income tax liability		—			295,016
Deferred gain		526,456			611,826
Long-term debt, net of current maturities		6,766,552			7,562,876
Long-term portion of prepetition debt, net of current maturities		206,974			211,485


Total liabilities		23,729,642			26,648,262


Stockholders’ 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			52,928
Treasury stock (14,000 shares, at cost)		(38,892	)		(38,892	)
Additional paid-in capital		6,353,656			6,353,656
Retained earnings		7,826,427			8,777,464


Total stockholders’ equity		14,194,119			15,145,156


Total liabilities and stockholders’ equity	$	37,923,761		$	41,793,418

The accompanying notes are an integral part of the condensed consolidated financial statements.

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


	Three Months Ended						Six Months Ended
	February 28,			February 28,			February 28,			February 28,
	2006			2005			2006			2005
Net sales	$	16,118,727		$	18,629,137		$	33,959,420		$	38,605,771
Cost of sales		14,876,462			18,072,991			31,113,801			37,069,767


Gross profit		1,242,265			556,146			2,845,619			1,536,004

Gain on sale of assets		(42,686	)		(42,685	)		(95,484	)		(101,909	)
Embezzlement Recovery		(50	)		(37,527	)		(75	)		(290,840	)
Selling, General and administrative expenses		1,911,634			2,092,286			3,746,658			4,378,136


Operating loss		(626,633	)		(1,455,928	)		(805,480	)		(2,449,383	)

Other expenses (income):
Interest expense		274,395			339,332			579,767			578,262
Other expense (income), net		(1,592	)		(28,749	)		21,315			(107,969	)


Total other expense		272,803			310,583			601,082			470,293

Loss before income tax expense		(899,436	)		(1,766,511	)		(1,406,562	)		(2,919,676	)

Income tax (benefit) expense :
Current		6,250			(1,227,623	)		12,500			(1,221,373	)
Deferred		(289,436	)		670,130			(468,025	)		270,752


Total income tax benefit		(283,186	)		(557,493	)		(455,525	)		(950,621	)

Net loss	$	(616,250	)	$	(1,209,018	)	$	(951,037	)	$	(1,969,055	)


Net loss per share (basic and diluted)	$	(0.12	)	$	(0.23	)	$	(0.18	)	$	(0.37	)


Weighted average shares outstanding (basic and diluted)		5,278,780			5,278,780			5,278,780			5,278,780

The accompanying notes are an integral part of the condensed consolidated financial statements.

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	February 28,
	2006			2005
Cash Flows From Operating Activities:
Net loss	$	(951,037	)	$	(1,969,054	)
Adjustments to reconcile net loss to net cash provided by (used in ) operating activities-
Depreciation and amortization		727,853			723,631
Decrease in Provision for Bad Debt Expense		181,954			207,867
Decrease in provision of losses of inventory		(6,865	)		(987	)
Loss (gain) on sale of property, plant and equipment		(10,114	)		(30,767	)
Change in deferred gain on sale of property		(85,370	)		(71,142	)
(Increase) decrease in deferred income tax (assets) liabilities		(468,025	)		270,752
Decrease in trade accounts receivable		1,897,329			2,586,123
Decrease (increase) in income tax receivable		33,762			(1,233,373	)
Decrease (increase) in inventory		1,343,659			(3,215,843	)
(Increase) decrease in prepaid expenses and other		(94,625	)		14,662
Decrease (increase) in noncurrent assets		2,341			(48,474	)
Decrease in accounts payable		(675,833	)		(1,497,907	)
(Decrease) increase in accrued liabilities		(317,886	)		267,746


Net cash provided by (used in) operating activities		1,577,143			(3,996,766	)

Cash Flows From Investing Activities:
Additions to property, plant and equipment		(51,629	)		(731,276	)
Proceeds from sale of property, plant and equipment		19,000			41,000


Net cash used in investing activities		(32,629	)		(690,276	)

Cash Flows From Financing Activities:
Net (payments) borrowings on line of credit		(333,936	)		3,828,085
Principal payments on prepetition debt		(4,361	)		(4,180	)
Principal (payments) borrowings on post-petition debt		(1,206,217	)		1,484,636


Net cash (used in) provided by financing activities		(1,544,514	)		5,308,541


Net Increase in cash and cash equivalents		—			621,499


Cash and cash equivalents, beginning of period		—			173,313


Cash and cash equivalents, end of period	$	—		$	794,812

The accompanying notes are an integral part of the condensed consolidated financial statements.

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 two wholly owned subsidiaries 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 Alexa Springs, Inc. a natural spring water bottler; and Hotsheet.com, Inc., the owner and operator of the Hotsheet.com web portal. Currently, TST has one wholly owned subsidiary, TST/Impreso of California, Inc., which was formed to support the activities of the paper converting segment of the Company’s business.

2. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the unaudited Interim Condensed Consolidated Financial Statements of the Company include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position as of February 28, 2006, and its results of operations for the three and six months ended February 28, 2006 and February 28, 2005. The consolidated financial statements include Impreso, Inc. and the accounts of its subsidiaries. All significant intercompany accounts and transactions with its consolidated subsidiaries have been eliminated in consolidation. Results of the Company’s operations for the interim period ended February 28, 2006, may not be indicative of results for the full fiscal year. The following unaudited Interim Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading.

It is suggested that these unaudited Interim Condensed Consolidated Financial Statements be read in conjunction with the audited Consolidated Financial Statements and notes thereto of the Company and its subsidiaries, included in the Company’s Form 10-K, (the “Form 10-K”), for the year ended August 31, 2005 (“Fiscal 2005”). 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 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”). Under this new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value based method and to recognize the expense over the service period. The Company has adopted SFAS 123R for its fiscal year ended August 31, 2006. Adopting this standard does not result in a material impact on the consolidated financial position, results of operations or cash flows of the Company.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (“SFAS 151”), an amendment of ARB No. 43, Chapter 4. SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense,

freight, handling costs and wasted material. SFAS 151 is effective for inventory costs incurred during our fiscal year ending August 31, 2006. The adoption of SFAS 151 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets—an amendment of APB Opinion No. 29 (“FAS 153”). SFAS 153 is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions (“APB 29”) , is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. However, the guidance in APB 29 included certain exceptions to that principle. FAS 153 amends APB 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The adoption of FAS 153 in the year ended August 31, 2005, did not have a material impact on the Company’s consolidated financial statements.

On March 29, 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the Staff’s interpretation of SFAS 123(R). This interpretation expresses the views of the Staff regarding the interaction between SFAS 123(R) and certain SEC rules and regulations and provides the Staff’s views regarding the valuation of share-based payment arrangements by public companies. In particular, this SAB provides guidance related to share-based payment transactions with non-employees, the transition from nonpublic to public entity status, valuation methods, the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS 123(R) in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123(R), the modification of employee share options prior to adoption of SFAS 123(R) and disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS 123(R). The Company has adopted SAB 107 in connection with its adoption of SFAS 123(R).

4. RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year presentation.

5. INVENTORIES

Inventories are stated at the lower of cost (principally on a first-in, first-out basis) or market and include material, labor and factory overhead.

Inventories consisted of the following:


	February 28, 2006			August 31, 2005
Finished goods	$	9,472,308		$	9,408,114
Raw materials		5,187,093			6,327,885
Supplies		1,101,475			1,385,293
Work-in-process		111,990			95,233
Allowance for obsolete inventory		(455,739	)		(462,604	)

Total	$	15,417,127		$	16,753,921

6. ACCOUNTING FOR LONG-LIVED ASSETS

In March 2004, the Company began a lease with an unrelated party for a 414,000 square foot warehouse and manufacturing facility in Chambersburg, Pennsylvania to consolidate east coast operations. In July 2004, the Company exited and no longer utilized company owned buildings located in Kearneysville, West Virginia.

In the first quarter ended November 30, 2005, the Company ceased depreciating the Kearneysville buildings and building improvements and reclassified the net book value of the land, building and building improvements in the amount of $1.3 million to assets held for sale. A contract for sale with a closing date of August 31, 2005, was terminated by the buyer in August 2005 after in-depth analysis revealed incompatibility with their required building configurations.

The Company has determined the plan of sale criteria in the statement of Financial Accounting Standards No. 144, ‘Accounting for the Impairment or Disposal of Long-Lived Assets’ has been met. Accordingly, the assets held for sale are classified as current and are carried at the lower of their carrying or fair value, less costs to sell. There were no write downs of inventory as a result of this valuation.

7. LONG-TERM DEBT AND LINE OF CREDIT:

The following is a summary of long-term debt and line of credit:


	February 28,		August 31,
	2006		2005
Line 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% (7.75% and 6.50%, as of February 28, 2006 and August 31, 2005, respectively).	$	5,972,418	$	6,306,354

Note 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.		169,422		184,645

Note 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.		476,230		511,580

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.		136,014		149,972

Notes payable to various commercial financial corporations, secured by equipment, interest rates ranging from 5.25% to 7.897%, maturing at various dates from May 2006 through July 2008.		73,476		96,428


	February 28,			August 31,
	2006			2005
Notes 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.		1,146,550			1,182,378

Note 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% and 7.375%, respectively as of February 28, 2006 and August 31, 2005) maturing September 2009.		4,245,603			4,318,812

Note 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, (7.51% and 6.7%, respectively as of February 28, 2006 and August 31, 2005), maturing February 2009.		642,857			767,857

Acquisition notes payable, unsecured, payable in monthly installments of $16,666, no interest, maturing February 2007.		234,056			296,463

Capital 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.		950,479			1,772,769

Prepetition-

Note payable to a commercial financial corporation, secured by real property and equipment and a personal guarantee by the trustee of a trust which is a principal stockholder of the Company, payable in monthly installments of $1,461 (including interest at 4%), maturing April 2008.		215,808			220,169

Total	$	14,262,913		$	15,807,427

Less Current Maturities		(7,289,387	)		(8,033,066	)

Long-Term Debt	$	6,973,526		$	7,774,361

Prepetition amount listed above represents the renegotiated amounts and terms under the 1993 plan of reorganization.

In June 2005, TST amended its revolving line of credit to extend the maturity date to November 2007. TST’s amended revolving credit line is limited to the lesser of $15 million or a percentage of eligible trade accounts receivable and inventories, as defined. The remaining availability under the revolving credit line was $2 million as of February 28, 2006.

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. For the period ended February 28, 2006, the

Company would not have been in compliance with the debt to worth ratio covenant, but received a waiver from the lender.

8. SUPPLEMENTAL CASH FLOW INFORMATION


	Three Months Ended				Six Months Ended
	February 28,				February 28,
Cash paid during the period for:	2006		2005		2006		2005
Interest	$	274,395	$	339,332	$	579,767	$	578,262
Income taxes	$	2,807	$	-0-	$	3,201	$	95,000

During the three months ended November 30, 2004, the Company reclassified $2,141,289 of property, plant and equipment to assets held for sale. In the fourth quarter of Fiscal 2005, some of the property was sold reducing assets held for sale to $1.3 million. The proceeds from the sale were applied to reduce the line of credit. $1.7 million relating to the financing of water bottling equipment was received in the three month period ended November 30, 2004, and was applied to reduce the line of credit.

9. STOCK OPTIONS

Options are granted at the sole discretion of the Stock Option Committee of the Board of Directors of the Company. The outstanding options vest ratably at various dates through 2015 at an exercise price of not less than the fair market value at the grant date. The options expire 10 years after the grant date.

In addition, the company granted outside the plan options to purchase 196,000 shares of common stock to employees in the fiscal years ended August 31, 1999-2001. The option shares vest ratably over the two years at various dates through 2003 at an exercise price of not less than fair market value at the grant date. These options expire five years after the grant date.

The following summarize information about stock options outstanding and exercisable as of February 28, 2006.


							Weighted Average
	#		Aggregate Intrinsic		Weighted Average		Remaining
	Options		Value		Exercise Price		Contractual Life

Options Outstanding		143,500		00		3.15		1.35


Options Exercisable		142,000		00		3.15		1.35

Effective September 1, 2005, the company adopted the provisions of Statement of Financial Accounting Standard No. 123R, Share-Based Payment, (“SFAS123R”) for its share-based compensation plans. The Company previously accounted for these plans under the recognition and measurement principals of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”) and related interpretations and disclosure requirements established by Statement of Financial Accounting

Standards No. 123, Accounting for Stock-based Compensation, (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock Based Compensation-Transition and Disclosure.

Under APB 25, no compensation expense was recorded in earnings for the Company’s stock based options and awards granted under the incentive stock option plan (“SOP”). The pro forma effects on net income and earnings per share for SOP awards were instead disclosed in a footnote to the financial statements. Under SFAS 123R, all share-based compensation to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense in earnings over the requisite service period.

The Company adopted SFAS 123R using the modified prospective method. Under this transition method, compensation cost recognized in the first quarter of fiscal year 2006 includes the cost for all share-based awards granted prior to, but not yet vested as of September 1, 2005. This cost was based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123. No stock based awards have either been granted or exercised in Fiscal 2006.


	Three months			Three months			Six months			Six months
	ended			ended			ended			ended
	February 28,			February 28,			February 28,			February 28,
	2006			2005			2006			2005
Reported Net Loss	$	(616,250	)	$	(1,209,018	)	$	(951,037	)	$	(1,969,055	)

Total Stock-based employee compensation expense included in the determination of reported net income		878			—			1,756			—
Total Stock-based employee compensation expense determined under fair value based method for all awards		(878	)		(—	)		(1,756	)		(1,000	)

Pro forma net loss for calculation of diluted earnings per share	$	(616,250	)	$	(1,209,018	)	$	(951,037	)	$	(1,970,055	)


Earnings per common share:
Basic — As reported	$	(0.12	)	$	(0.23	)	$	(0.18	)	$	(0.37	)

Basic — Pro forma	$	(0.12	)	$	(0.23	)	$	(0.18	)	$	(0.37	)

Diluted — As reported	$	(0.12	)	$	(0.23	)	$	(0.18	)	$	(0.37	)

Diluted — Pro forma	$	(0.12	)	$	(0.23	)	$	(0.18	)	$	(0.37	)

10. LEGAL MATTERS

On September 18, 2002, TST filed a lawsuit against a vendor in the United States District Court for the Northern District of Texas — Dallas Division. TST’s general claim is that the vendor breached a Distributor Agreement entered into with TST in several material respects, including the vendor’s late delivery of paper products, the vendor’s delivery of defective product, and the vendor’s failure to properly credit TST’s accounts based upon these and other alleged breaches. The vendor responded 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 is set for July 2006.

On November 5, 2003, the Company discovered the Company’s payroll administrator was fraudulently diverting Company funds into her personal bank accounts. In November 2004, the Company and the insurer at the time the loss was discovered executed a partial settlement without waiving each party’s rights to proceed to suit or defend on the balance of the Company’s losses. Management believes recent legal developments could be persuasive in litigating different interpretations of defined terms within the policy,

and therefore recovering the balance of up to $500,000 of the Company’s claim as filed with the Insurer. The fraudulently diverted funds were recorded in the Registrant’s consolidated financial statements for fiscal years ended August 31, 2001, 2002 and 2003, as salary expense. Partial reimbursement from the insurance company and the embezzler is recorded as a separate line item under operating income, embezzlement recovery, for the three and six months ended February 28, 2005. In August 2005, we filed suit in Dallas County to pursue our claims against potentially liable parties for losses incurred. The parties are currently conducting discovery.

In April 2004, TST filed a lawsuit in the 68th judicial district Dallas County against a former outside representative, alleging breach of fiduciary duty, tortuous 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 agent. The defendant filed a counter claim alleging business disparagement and tortious interference with existing and prospective business relations. Trial is reset for August 2006.

In June 2005, TST was served with the preference lawsuit by the Trustee of the estate of a former customer in the amount of $1.2 million.. The suit was based upon a gross preference demand. On February 16, 2006, the Company settled the preference action in the amount of $20,000 and the release of its claim in the bankruptcy.

The Company’s Corporate Income Tax Returns for the fiscal years ending August 31, 2001, 2002, and 2003, were under examination by the Internal Revenue Service (“IRS”). The IRS had proposed adjustments to the fiscal years under examination. The matter was sent to the Appeals Division of the IRS, who on February 27, 2006, conceded all issues and no adjustments will be made to those fiscal years. In December 2005, the IRS began an examination of the Company’s Corporate Income Tax Return for the fiscal year ended August 31, 2004.

In June 2005, TST was served with a preference lawsuit from the Trustee of the estate of a former customer in the amount of approximately $194,000. The suit is based upon a gross preference demand and the Company believes subsequent to a full preference analysis and the Company’s utilization of various defenses, any resulting liability should be lowered to a materially reduced amount. Subsequent to the three month period ended February 28, 2006, the Company settled with the Trustee in the amount of $6,000, subject to confirmation by the Bankruptcy Court.

On January 19, 2006, Impreso, Inc. (the “Company”) was served with a shareholder derivative lawsuit. This action, is one in which one of the Company’s shareholders (the “plaintiff shareholder”) is asserting rights derived from the Company. The shareholder derivative action does not seek the recovery of damages from the Company, but rather asks that the Company recover damages in an unspecified amount from five of six members of the Company’s Board of Directors during a time period relevant to the petition’s allegations. The sixth, unnamed member of the Board of Directors during the relevant time period was appointed at the request of the plaintiff shareholder and voted in favor of the transactions about which the petition complains; the structure of the Company’s water bottling division, the Chief Executive Officer’s compensation package, and the Company conducting business with a company owned by the spouse of the Chief Executive Officer The parties are conducting discovery. Trial is set for November 2006.

11. SUBSEQUENT EVENTS

In January 2006, the Company leased a portion of its Chambersburg facility to a subtenant for a period of one year, at an annual rental rate of $206,000. Subsequent to the three months ended February 28, 2006, the Company leased an additional 24,000 square feet to the same subtenant on a month to month basis at a monthly rental rate of $6,700. In addition, on April 1, 2006, the Company leased a portion of its Chambersburg facility to a second subtenant for a period of three years, at an annual rental rate of $252,000.

The Company has also agreed to provide storage services in our Itasca, Illinois facility to a local business, which initiated in late February of 2006. The Company anticipates income from these services of approximately $6,000 to $10,000 per month.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES

The accounting policies described below are those the Company considers critical in preparing its consolidated financial statements. These policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, the Company’s observation of trends in the industry, information provided by customers and information available from other outside sources, as appropriate and available at the time the estimates are made. However, as described below, these estimates could change materially if different information or assumptions were used. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment or estimation than other accounting policies.

Accounts Receivable (doubtful accounts) Reserves

The Company 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 records sales of hard copy imaging and bottled water products when products are shipped to customers. Our revenue recognition policy complies with the required four revenue recognition criteria: Our customers’ purchase orders or on line authorizations and our order acknowledgments include the terms of the sale and are binding on the customer, persuasive evidence that a transaction exits; Delivery has occurred, as risk of loss of the product has passed to the customer; The purchase orders, on line authorizations and order acknowledgments make our price to our customer fixed or determinable; Finally, we assess the likelihood of collecting credit accounts prior to revenue recognition and are reasonably assured the sales are collectible due to our credit policies and collection methods. The Company reserves against doubtful accounts based upon historical experience and management’s evaluation of existing economic conditions. Consistent monitoring of the accounts receivable allows us to determine if an account’s collection is becoming compromised. We reinvestigate delinquent customers to see if there may be a slow pay trend or economic condition affecting this customer. Subsequent to this inquiry, we evaluate our doubtful account reserve and if the information reflects additional exposure, we increase our reserve accordingly. Hotsheet.com, Inc. generates its revenue by click through fee advertising revenues and commissions earned. Click through fees are generated when traffic is sent from the Hotsheet.com website, via a link, to a vendor’s website. Commissions are generated when the linked traffic makes purchases. The revenue is recognized upon receipt, which at this time does not differ significantly from accrual basis.

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.

Management’s estimate of the allowance for inventory obsolescence is based upon a detailed analysis of slow-moving inventory. This analysis includes an item by item review of the slow moving inventory detail to specifically identify items for which a reserve should be established. In addition to the specific reserve, the company establishes an additional reserve, based on its judgment about the nature of the remaining items and market conditions in general.

Typically, returns are not material, therefore, generally, we record reductions in revenue when products are returned and they are not accrued for with sales reduced to reflect estimated returns. On occasion a customer may request authorization for an extraordinary return of product. Such request is analyzed and if material, accrued for with the estimated return applied as a reduction of sales.

Our return policy is to accept product back for full credit if the product was shipped in error or for product that fails to meet acceptable quality standards. Returns of this nature must comply with the following: return authorization is valid for 30 days only; claims must be submitted to customer service within one week of product being delivered; We will not accept collect shipments on product being returned; and samples of defective product must be sent to the Customer Service Returns Coordinator for evaluation and disposition of product.

We will also accept hard copy imaging product back for credit subject to a restocking charge (20% on Impreso brand; 30% on IBM brand) for product that was, for example, ordered in error by the customer and is in re-saleable condition, returned within 4 months of original purchase and has not been discontinued from the product line. Products with a shorter shelf-life, such as carbonless paper and thermal products must be returned within 3 months of original purchase. Once a return has been authorized and the product returned to our warehouse or plant, the customer is issued a credit, according to the type of return, against their account. This credit is then booked to the returns and allowances account and a reduction in revenue is taken.

Rebates, Advertising Allowances, and Independent Sales Commissions

The Company accrues for rebates and advertising allowances paid to certain customers; and commissions paid to independent sales representatives, based on specific contractual agreements. These accruals are calculated based upon the volume of purchases by customers and sales by independent sales representatives, which are adjusted monthly to reflect increases and decreases. Advertising allowances provided to our customers must be used for advertising of our products and services and can not be used for any other purposes.

For the three months ended February 28, 2005 and February 28, 2006, we recorded customer rebates in the amount of $847,000 and $ 1.1 million, respectively. For the six months ended February 28, 2005 and February 28, 2006, we recorded customer rebates in the amount of $2.3 million and $2.1, respectively. The customer rebates are recorded as a decrease to sales.

For the three months ended February 28, 2005 and February 28, 2006, we recorded advertising allowances in the amount of $194,000 and $217,000, respectively. For the six months ended February 28, 2005 and February 28, 2006, we recorded advertising allowances in the amount of $524,000 and $457,000, respectively. The advertising allowances are recorded as an SG&A expense.

For the three months ended February 28, 2005 and February 28, 2006, we recorded independent sales commissions in the amount of $50,000 and $86,000, respectively. For the six months ended February 28, 2005 and February 28, 2006, we recorded independent sales commissions in the amount of $130,000 and $123,000, respectively. The independent sales commissions are recorded as an SG&A expense.

Contingent liabilities.

The Company is subject to lawsuits, investigations and other claims related to wage and hour/labor, securities, environmental, product and other matters, and is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made when losses are determined to be probable and after considerable analysis of each individual issue. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control.

SEGMENT ANALYSIS

SFAS No. 131,” Disclosures about Segments of an Enterprise and Related Information” establishes standards for reporting information about operating segments. Our operations are segregated into operating segments according to product category. Under this standard, as of February 28, 2006, we had two reportable operating segments: hardcopy imaging products and natural spring bottled water products. We evaluate the performance of each segment using pre-tax income or loss from continuing operations. The table below presents information as to our net sales, operating earnings and total assets for all reportable segments.


	Six Months Ended February 28, 2006						Six Months Ended February 28, 2005
	AMOUNT			PERCENT			AMOUNT			PERCENT
NET SALES BY INDUSTRY SEGMENT
Hardcopy imaging products	$	33,609,749			98.97	%	$	38,587,842			99.9	%
Bottled water	$	349,671			1.03	%	$	17,929			0.05	%

Total	$	33,959,420			100.00	%	$	38,605,771			100.00	%

PRE TAX (LOSS) PROFIT FROM CONTINUING OPERATIONS
Hardcopy imaging products	$	(1,132,804	)		80.54	%	$	(2,620,052	)		89.74	%
Bottled water	$	(273,758	)		19.46	%	$	(299,624	)		10.26	%

Total	$	(1,406,562	)		100.00	%	$	(2,919,676	)		100.00	%


	Three Months Ended February 28, 2006						Three Months Ended February 28, 2005
	AMOUNT			PERCENT			AMOUNT		PERCENT
NET SALES BY INDUSTRY SEGMENT
Hardcopy imaging products		16,052,268			99.59	%		—		—
Bottled water		66,459			0.41	%		—		—

Total		16,118,727			100.00	%		—		—

PRE TAX (LOSS) PROFIT FROM CONTINUING OPERATIONS
Hardcopy imaging products		(766,992	)		85.27	%		—		—
Bottled water		(132,444	)		14.73	%		—		—

Total	$	(899,436	)		100.00	%		—		—


	As Of February 28, 2006				As Of August 31, 2005
TOTAL ASSETS BY INDUSTRY SEGMENT
Hardcopy imaging products	$	35,400,392	93.35	%	$	39,043,670	93.42	%
Bottled water	$	2,523,369	6.65	%	$	2,749,748	6.58	%

Total	$	37,923,761	100.00	%	$	41,793,418	100.00	%

Results of Operations for the Interim Periods Ended February 28, 2006 and February 28, 2005.

Net Sales—Net sales decreased from 18.6 million in the three months ended February 29, 2005 to $16.1 million in the three months ended February 28, 2006 (“Second Quarter 2006”), a decrease of $2.5 million or 13.5%. Net sales decreased from $38.6 million in the six months ended February 29, 2005, to $34 million in the six months ended February 28, 2006, a decrease of $4.6 million or 12%. Net sales decreased in the three and six months period ended February 28, 2006, as compared to the corresponding periods of the prior year, due to a shrinking market in the continuous business forms segment of our industry and loss of customers resulting from our increased finished goods pricing.

Gross Profit-— Gross profit increased from $556,000 in the three months ended February 29, 2005, to $1.2 million in the Second Quarter 2006, an increase of 123%. Gross profit increased from $1.5 million in the six months ended February 28, 2005, to $2.8 million in the six months ended February 28, 2006, an increase of 85.3%. Gross profit margin for the Second Quarter increased to 7.7% as compared to 3 % for the three month period ended February 28, 2005. Gross profit margin for the six month period ended February 28, 2006, increased to 8.4% as compared to 4% for the six month period ended February 28, 2005. The increases in gross profit and gross profit margin for the three and six month periods ended February 28, 2006, resulted from reductions to overhead such as reductions in production workforce and employee benefits, and increases in finished goods pricing.

Selling, General, and Administrative Expenses—SG&A expenses decreased from $2.1 million in the three months ended February 28, 2005 to $1.9 million in the Second Quarter 2006. SG&A expenses decreased from $4.4 million in the six months ended February 28, 2005 to $3.7 million in the six months ended February 28, 2006. In the three and six month periods ended February 28, 2005, the decrease in SG&A expenses was primarily the result of a reduction in workforce and employee benefits. SG&A expenses as a percentage of net sales increased from 11.2 % in the three months ended February 28, 2005, to 11.9 % in the Second Quarter 2006. SG&A expenses as a percentage of net sales decreased from 11.3 % in the six months ended February 28, 2005, to 11 % in the six months ended February 28, 2006. The increase in SG&A as a percentage of sales for three month period ended February 28, 2006, is due to the decrease in net sales. The decrease in SG&A as a percentage of sales for six month period ended February 28, 2006, is due to workforce reductions and employee benefits in the quarter ended February 28,2005, and decreased travel and entertainment.

Interest Expense—Interest expense decreased from $339,000 in the three months ended February 28, 2005, to $274,000, or 19.1 %, in Second Quarter 2006. Interest expense increased from $578,000 in the six months ended February 28, 2005, to $580,000, or 0.26 %, in the six months ended February 28, 2006. The decrease of Interest Expense by 19.1% in the Second Quarter 2006 as compared to the three months ended February 28, 2005, resulted from using a lower interest rate letter of credit to pay down the principal on a higher rate lease. The increase of interest expense by 0.26% in the six months ended February 28, 2006, as compared to the corresponding period of the prior year is due to increases in the prime rate.

Income Taxes-— Income tax benefit decreased from $557,000 for the three months ended February 28, 2005, to $283,000 in Second Quarter 2006. Income tax benefit decreased from $951,000 for the six months ended February 28, 2005, to $456,000 in the six months ended February 28, 2006.The decreases in income tax benefit for Second Quarter 2006 and the six month period ended February 28, 2006, as compared to the corresponding periods of the prior year is due to a decrease in deferred expense and net losses.

The cessation of sales of continuous business forms to a significant customer has had a material impact on our net sales and revenues, and adversely affected our liquidity, capital resources and results of operations.

We are currently working to replace this business with other volume purchasers of this product. We have also been successful in introducing other product lines to this customer and will continue to try and recapture the sale of continuous business forms to this company.

The decline in the market of continuous feed business forms has begun to materially impact our net sales and revenues. Management has partially compensated for the maturity and decline of this hard copy imaging category by branching into other hard copy imaging products such as cut sheet, value added, and add roll products to replace the lost revenue from the sales of continuous feed products. However, the increase in revenue attributable to these categories has not increased in proportion to the decline of the continuous feed business forms sales.

The most recent addition to our product line, a complimentary item to hard copy imaging products for office products distributors, is bottled spring water which started generating sales in Fiscal 2005. Bottled spring water did not utilize our existing equipment and during the start up phase necessitated the acquisition of new facilities and equipment, thereby depleting capital resources and reducing liquidity. This, combined with other events, collectively adversely impacted operations. However, the long term investment in this product category will maximize the efficiency of our selling force, administration, and distribution infrastructure due to opposite seasonal cycles of consumption. Whereas in the summer months, hard copy imaging products may slow, the bottled water business is at its peak.

Liquidity and Capital Resources

We define liquidity as the ability to generate adequate funds to meet our operating and capital needs. Our cash requirements are primarily for working capital, capital expenditures, and interest and principal payments on our debt and capital lease obligations. Historically, these needs for cash have been met by cash flows from operations and borrowings under our revolving credit facility.

Effective June 8, 2005, TST amended its loan agreement with a commercial financial corporation to extend the maturity date to November 17, 2007. The amended agreement provides for a $15 million line of credit and an inventory sub-limit of $12 million. The amended loan is secured by, among other things, inventory, trade receivables, and equipment.

Available borrowings under this line of credit, which accrued interest at prime plus .25% (7.75 % as of February 28, 2006), are based upon specified percentages of eligible accounts receivable and inventories. As of February 28, 2006, there was a sufficient borrowing capacity remaining under the $15 million revolving line of credit. A portion of the net proceeds from the sale of our facility located in Kearneysville, West Virginia will be applied to reduce the outstanding borrowings on this line (See Footnote 6).

Borrowings under our line of credit decreased from $6.3 million at August 31, 2005, to $6.0 million at February 28, 2006, a decrease of $334,000 or 5.6%. A reduction of inventory primarily contributed to our decreased borrowing.

Working capital decreased to $10.2 million as of February 28, 2006, from $11.4 million at August 31, 2005. This represented a decrease of 10.4%. This decrease is primarily attributable to the $1.3 million decrease in inventory.

Net Cash Provided by/Used in Operating, Investing, and Financing Activities

Our operating activities provided $1.6 million of cash in the six month period ended February 28, 2006 and used $4 million in the six month period ended February 28, 2005. Cash provided by operations for the six

month period ended February 28, 2006, was primarily the result of reductions in inventory and accounts receivable.

Cash used in investing activities was $33,000 for the six month period ended February 28, 2006. Cash used in investing activities was $690,000 for the six month period ended February 28, 2005. Cash used in investing activities for the six month period ended February 28, 2006, were due to expenditures for property, plant and equipment associated with the spring water bottling facility.

Cash used in financing activities was $1.5 million for the six month period ended February 28, 2006. Cash provided by financing activities was $5.3 million for the six month period ended February 28, 2005. Cash used in financing activities for the six month period ended February 28, 2006, was primarily used to pay down the line of credit, and a letter of credit which was collateral on the water bottling equipment lease.

Capital Expenditures

During the six month period ended February 28, 2006, we incurred $52,000 in capital expenditures: $33,000 in equipment for our water bottling operations, and $19,000 on upgrades to computer and plant equipment. During the six month period ended February 28, 2005, we spent $600,000 on capital expenditures consisting of equipment purchases associated with our new bottled spring water operations. We plan to make total capital expenditures of approximately $400,000 during Fiscal 2006.

Future Liquidity

Freight, fuel, and certain material costs which were not fully passed through to our customers adversely impacted our liquidity and capital resources in the First Quarter 2006. Management addressed this issue and believes we have corrected this in the Second Quarter 2006. In the six months ended February 28, 2006, we were not fully utilizing all of the real estate of our owned and leased facilities. At our Chambersburg, Pennsylvania plant, our largest square foot facility, as of April 1, 2006, two subtenants executed leases to occupy material portions of the space. However, one facility with two buildings in West Virginia remains empty and on the market to be sold. As of the date of filing this Form 10-Q, no contract is pending on this facility. Management has engaged a broker to sell another owned facility, with a possible lease-back or move to another less expensive location. The water bottling facility is operating and March begins the strongest season for sales of bottled water. Absent unforeseen circumstances these known trends and uncertainties indicates that our performance may stabilize by the end of our Fiscal 2006 year.

Based upon current levels of operations and planned improvements in our operating performance, management believes that cash flow from operations together with the potential sale of our buildings, rent income and available borrowings under our revolving line of credit should be adequate to meet our anticipated requirements for working capital and debt service through the end of fiscal 2006. Such belief is based on certain assumptions, including the continuation of the state of current operations, and there can be no assurance that such assumptions are correct. The expansion of our operations into diversified products may require us to obtain additional capital. We anticipate that the funds required will be generated through an increase in our revolving line of credit.

Our current level of profitability affects our ability to obtain additional financing or react quickly to changes in our industry. We will continue to assess our liquidity position and potential sources of supplemental liquidity in light of our operating performance and other relevant circumstances. Should we determine, at anytime, that it is necessary to seek additional short-term liquidity, we will evaluate our alternatives and take appropriate steps to obtain sufficient additional funds. There can be no assurance that any additional financing will be available if needed, or, if available, will be on acceptable terms. We have not identified any sources of long term liquidity.

As of February 28, 2006, we did not own derivative or other financial instruments for trading or speculative purposes. We do not use financial instruments and, therefore, the implementation of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” did not have a material impact on our financial position or results of operations.

SUPPLY AND INVENTORY: HARDCOPY IMAGING PRODUCTS

Over the past decade domestic mills have been consolidating and working at curtailing supply by closing their older, less efficient production facilities. In the past six months the mills have been affected by the same increases we have experienced, such as increased energy costs to operate and higher costs in fuel for transportation. Most of the mills in the Untied States are on allocation or reserve system, unable to meet current demand. Backlogs at the mills are approximately 30 to 45 days. Certain mills have stopped manufacturing certain grades of paper, focusing resources on the most profitable items. In addition to these events, recent weakness of the U.S. dollar and increased demand for paper in other countries has impacted and reduced the amount of foreign paper being imported into the United States. In January and March of 2006, increases in pricing on raw paper materials were implemented by the domestic mills. The Company in response, implemented finished goods pricing immediately subsequent to those increases.

It is necessary for TST to maintain a sufficient inventory of finished goods and raw materials to adequately service its customers with just-in-time delivery. Our inability to pass along raw material and component increases could materially adversely effect our financial position and results of operation. We believe that paper stock raw material and component prices may continue to increase during the remainder of Fiscal 2006.

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, or 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 we have a good relationship with all of our current suppliers.

SUPPLY AND INVENTORY: NATURAL SPRING BOTTLED WATER

In Fiscal 2005, we started building bottled water inventory at our one bottling and four hardcopy image manufacturing facilities. We do not store bottled water products at public warehouses. Hurricanes Katrina and Rita created a large demand for our water products and substantially depleted our initial inventory. Water inventory requires more frequent inventory turns than hardcopy imaging products, since the shelf life of water is shorter. The increase in our sales created by the hurricanes at the end of the Fiscal 2005, has allowed us to build fresh water inventory for March 2006, which is the beginning of high demand season in the bottled water product cycle. Currently the Alexa Springs are producing substantially more spring water than we are bottling and selling.

Bottling and distribution costs, including plastic, fuel, and freight charges which increased in the First Quarter 2006, remained stable in the Second Quarter 2006. While not all of these increases were effectively passed through to our customers in First Quarter 2006, we have been successful in getting these increases through to a majority of our customers in Second Quarter 2006. Although we were successful in getting these

increased costs through to a majority of our customers in the three months ended February 28, 2006, there can be no assurance that we will be able to increase finished goods pricing at the same pace as these component categories increase. Our inability to increase finished goods pricing that includes all of the manufacturing increased costs could materially adversely effect our financial position and results of operation. We believe that bottling and distribution costs, including plastic, fuel, and freight charges will remain stable in the remainder of Fiscal 2006.

MARKET CONDITIONS OF TST

In the three months ended November 30, 2005, we experienced significant increases in component pricing, and in the three months ended February 28, 2006, we experienced significant increases in raw paper material costs in our hard copy imaging segment of our business. Substantially most of the raw paper material and component increased costs are successfully being passed through to a majority of our customers. The finished goods pricing increase has contributed to a reduction of sales, but it also contributed to an increased gross profit margin.

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.

We have targeted the small to mid range size private label market as the niche for us to gain market share in the bottled water industry. The size and configuration of our operations accommodates smaller batch runs of individualized labels, which may be economically disadvantageous for larger companies. We have also widened our channels of distribution, by soliciting advertising specialties, retailers, wholesalers, and food and beverage companies. We are expanding our product line by introducing new packaging options for our 16.9 oz. bottle size. Our original flat cap and light weight bottle was developed to promote ecology friendly packaging. The new options are sports cap tops and heavier bottles, which offer greater use and convenience for certain end users.

We have received a material increase in orders and revenue has increased 496% in bottled water sales in the three months ended February 28, 2006, as compared to the corresponding period of the prior year. We are seeing an increase of repeat orders which are more profitable. We have produced over 250 private label projects in the twelve months ended Second Quarter. In the industry for calendar year 2006, bottled water sales are projected to increase approximately 10-14%. Private labeled bottled water expected growth for calendar year 2006, the fastest growing segment in the bottled water industry category, is expected to be approximately 29%. It is predicted by the industry that bottled water consumption will surpass soft drinks in the next two years.

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

This Form 10-Q may contain forward looking statements. Many of these forward looking statements can be identified by use of words such as may, will, expect, anticipate, estimate, assume, continue, project, plan, and similar words and phrases. The Company’s actual results and future financial condition may differ materially from those expressed in any such forward looking statements as a result of many factors that may be outside the Company’s control. Such factors include, without limitation: general economic conditions, availability of raw materials, the cyclical nature of the industries in which we operate, the potential of technological changes which would adversely affect the need for our products, price fluctuations which could adversely impact the inventory we require, loss of any significant customer and termination of contracts essential to our business, competition from existing and potential competitors; competition from other channels of distribution; and pricing pressures The Company does not undertake any obligation to update its forward looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are not exposed to market risks such as foreign currency exchange rates, but are exposed to risks such as variable interest rates. Market risk is the potential loss arising from adverse changes in market prices and rates. Our subsidiaries do not have supply contracts with any of their foreign vendors. All foreign vendors are paid in United States currency. In addition, TST’s international sales of finished goods are insignificant. Accordingly, there are not sufficient factors to create a material foreign exchange rate risk; therefore, we do not use exchange commitments to minimize the negative impact of foreign currency fluctuations.

We had both fixed-rate and variable-rate debts as of February 28, 2006. The fair market value of long-term variable interest rate debt is subject to interest rate risk. Our exposure to interest risks is not material. Generally the fair market value of variable interest rate debt will decrease as interest rates fall and increase as interest rates rise.

The estimated fair value of our total long-term fixed rate and floating rate debt approximates carrying value. Based upon our market risk sensitive debt outstanding at February 28, 2006, there was no material exposure to our financial position or results of operations.

Item 4. Controls and Procedures

The conclusions of the Company’s Chief Executive Officer and Chief Financial Officer concerning the effectiveness of the Company’s disclosure controls and procedures and changes in internal controls as of February 28, 2006 are as follows:

a) They have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

b) There were no changes in the Company’s internal controls during the quarter ended February 28, 2006 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 10 to condensed consolidated financial statements contained in Part I, Item 1 of this report, which is incorporated by reference in this Part II, as its Item 1.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None

Item 3. Defaults upon Senior Securities. None

Item 4. Submission of Matters to a Vote of Security Holders. None

Item 5. Other Information. None

Item 6. Exhibits

Exhibits to Part 1.


Exhibit No.		Description of Exhibits
31.1		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.


		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

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Report based on such evaluation; and

	c)		Disclosed in the Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;


Date: April 12, 2006		/s/ Marshall D. Sorokwasz

		Marshall D. Sorokwasz
		Chief Executive Officer and President

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Report based on such evaluation; and

	c)		Disclosed in the Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;


Date: April 12, 2006		/s/ Susan M. Atkins

		Susan M. Atkins
		Chief Financial Officer

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Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


PART I.	FINANCIAL INFORMATION	Page Number
Item 1.	Condensed Consolidated Financial Statements:

	Interim Condensed Consolidated Balance Sheets as of February 28, 2006 (Unaudited) and August 31, 2005		1
	Interim Condensed Consolidated Statements of Operations for the Three and Six Months Ended February 28, 2006 and February 28, 2005 (Unaudited)		3
	Interim Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended February 28, 2006 and February 28, 2005 (Unaudited)		4
	Notes to Interim Condensed Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		20

Item 4.	Controls and Procedures		20

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		21

Item 3.	Defaults upon Senior Securities		21

Item 4.	Submission of Matters to a vote of Security Holders		21

Item 5.	Other Information		21

Item 6.	Exhibits		21

SIGNATURES			22

INDEX TO EXHIBITS			23
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

1.		I have reviewed the quarterly report on Form 10-Q for the quarter ended February 28, 2006 of Impreso, Inc. (the “Report”);

2.		Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Report;

3.		Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the Report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	a)		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	1.		The Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2006 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

	2.		Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

	3.		Item 4 Controls and Procedures in the Company’s Form 10-Q is incorporated herein by reference.


		/s/ Marshall D. Sorokwasz

Name:		Marshall D. Sorokwasz
Title:		Chief Executive Officer and President