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 ~~November~~May 3031, ~~2005~~2006

OR or


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

For the transition period to

Commission File Number 000-29883

Impreso, Inc.

(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.)
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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 ~~(as~~a ~~defined~~non-accelerated infiler. ~~Exchange~~See ~~Act~~definition of “accelerated filer and large accelerated filer” in Rule 12b-2~~). Yes~~ oof Nothe þExchange Act (Check one):

~~Indicate by~~Large ~~check~~accelerated ~~mark~~filer ~~whether~~o Accelerated ~~the~~filer ~~registrant is a shell company (as defined in Rule 12b~~o Non-2accelerated offiler ~~the Exchange Act) Yes o No~~ þ

Indicate ~~the~~by ~~number~~checkmark ofwhether ~~shares~~the ~~outstanding~~registrant ofis ~~each~~a ofshell ~~the~~company ~~issuer’s~~(as ~~classes~~defined ofin ~~Common~~Rule 12b-2 ~~Stock as~~ of the ~~latest~~Exchange ~~practicable~~Act) Yes ~~date.~~o No þ

Class of Common Stock		Shares outstanding at May 17, 2005
$0.01 Par Value		5,278,780

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 July 14, 2006: 5,278,780.

IMPRESO, INC. AND SUBSIDIARIES FORM 10-Q ~~November~~May 3031, ~~2005~~2006

INDEX

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:
	Interim Condensed Consolidated Balance Sheets as of November 30, 2005 (Unaudited) and August 31, 2005		1
	Interim Condensed Consolidated Balance Sheets as of May 31, 2006 (Unaudited) and August 31, 2005	1
	Interim Condensed Consolidated Statements of Operations for the Three Months Ended November 30, 2005 and November 30, 2004 (Unaudited)		3
	Interim Condensed Consolidated Statements of Operations for the Three and Nine Months Ended May 31, 2006 and May 31, 2005 (Unaudited)	3
	Interim Condensed Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2005 and November 30, 2004 (Unaudited)		4
	Interim Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended May 31, 2006 and May 31, 2005 (Unaudited)	4
	Notes to Interim Condensed Consolidated Financial Statements	5	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18	20
Item 4.	Controls and Procedures	18	20
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	19	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19	21
Item 3.	Defaults upon Senior Securities 20	19	21
Item 4.	Submission of Matters to a ~~vote~~Vote of Security Holders	19	21
Item 5.	Other Information	19	21
Item 6.	Exhibits	19	21
SIGNATURES		20	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

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS ~~(Unaudited)~~

	November 30,			August 31,
	2005			2005
Current 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			8,996,319
Receivable, IRS		1,221,532			1,255,294
Inventories, net of reserves		15,658,473			16,753,921
Prepaid expenses and other		329,656			217,183
Assets held for sale		1,278,872			1,278,872
Deferred income tax assets		870,093			828,092
Total current assets		27,955,366			29,329,681
Property, plant and equipment, at cost		27,127,440			27,174,188
Less-Accumulated depreciation		(15,091,859	)		(14,784,634	)
Net property, plant and equipment		12,035,581			12,389,554
Noncurrent assets
Other assets		73,013			74,183
Total assets	$	40,063,960		$	41,793,418

(Unaudited)


	May 31,			August 31,
	2006			2005
Current assets:
Trade accounts receivable, net of allowance for doubtful accounts of $1,026,941 May 31, 2006 and $1,414,042 as of August 31, 2005	$	8,556,439		$	8,996,319
Receivable, IRS		1,221,532			1,255,294
Inventories, net of reserves		15,163,853			16,753,921
Prepaid expenses and other		360,044			217,183
Assets held for sale		1,278,872			1,278,872
Deferred income tax assets		674,456			828,092


Total current assets		27,255,196			29,329,681


Property, plant and equipment, at cost		27,198,509			27,174,188
Less-Accumulated depreciation		(15,779,800	)		(14,784,634	)


Net property, plant and equipment		11,418,709			12,389,554


Noncurrent assets
Other assets		70,671			74,183
Deferred income tax assets		351,813			0


Total noncurrent assets		422,484			74,183



Total assets	$	39,096,389		$	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)

	November 30,			August 31,
	May 31,			August 31,
	2005			2005
	2006			2005
Current liabilities:
Accounts payable	$	78,~~602~~475,~~367~~657		$	8,182,928
Checks issued in excess of deposits		392,339			—
Accrued liabilities		876,402			796,834
Accrued liabilities		827,470			796,834
Accrued commissions		1,002,255			954,231
Accrued commissions		1,283,522			954,231
Current maturities of long-term debt		1,103,187			1,718,028
Current maturities of long-term debt		950,581			1,718,028
Line of credit		6,029,632			6,306,354
Line of credit		5,895,003			6,306,354
Current maturities of prepetition debt		8,909			8,684
Current maturities of prepetition debt		8,759			8,684
Total current liabilities		17,496,042			17,967,059
Total current liabilities		16,960,041			17,967,059
Deferred income tax liability		0			295,016
Deferred income tax liability		158,427			295,016
Deferred gain		483,770			611,826
Deferred gain		569,141			611,826
Long-term debt, net of current maturities		6,772,959			7,562,876
Long-term debt, net of current maturities		7,356,740			7,562,876
Long-term portion of prepetition debt, net of current maturities		202,045			211,485
Long-term portion of prepetition debt, net of current maturities		209,241			211,485
Total liabilities		24,954,816			26,648,262
Total liabilities		25,253,590			26,648,262
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized;		—0			—0
0 shares issued and outstanding
Common stock, $.01 par value; 15,000,000 shares authorized;		52,928			52,928
5,292,780 issued and 5,278,780 outstanding
Treasury stock (14,000 shares, at cost)		(38,892	)		(38,892	)
Additional paid-in capital		6,353,656			6,353,656
Retained earnings		87,~~442~~773,~~678~~881			8,777,464
Total stockholders’ equity		14,~~810~~141,~~370~~573			15,145,156
Total liabilities and stockholders’ equity	$	4039,~~063~~096,~~960~~389		$	41,793,418

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ~~(Unaudited)~~

	Three Months Ended
	November 30,			November 30,
	2005			2004
Net sales	$	17,840,693		$	19,976,634
Cost of sales		16,237,339			18,996,776
Gross profit		1,603,354			979,858
Gain on sales of assets		(52,798	)		(59,224	)
Embezzlement recovery		(25	)		(253,313	)
Selling, General and administrative expenses		1,835,024			2,285,850
Operating loss		(178,847	)		(993,455	)
Other expenses (income):
Interest expense		305,372			238,930
Insurance recovery		—			(10,000	)
Other expense (income), net		22,907			(69,220	)
Total other expense (income)		328,279			159,710
Loss before income tax expense		(507,126	)		(1,153,165	)
Income tax (benefit) expense :
Current		(113,788	)		6,250
Deferred		(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			5,278,780
Weighted average shares outstanding (diluted)		5,286,389			5,301,493

(Unaudited)

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


	Three Months Ended						Nine Months Ended
	May 31,			May 31,			May 31,			May 31,
	2006			2005			2006			2005

Net sales	$	17,842,095		$	19,829,734		$	51,801,515		$	58,435,505
Cost of sales		15,741,361			18,733,138			46,855,162			55,782,864


Gross profit		2,100,734			1,096,596			4,946,353			2,652,641

Gain on sale of assets		(40,866	)		(42,685	)		(136,350	)		(142,285	)
Embezzlement recovery		0			0			(50	)		(290,840	)
Selling, general and administrative expense		1,878,242			2,220,005			5,624,900			6,728,183


Operating income (loss)		263,358			(1,080,724	)		(542,147	)		(3,642,417	)

Other expenses (income):
Interest expense		281,220			322,641			860,987			900,903
Extinguishment of debt		0			(489,645	)		0			(489,645	)
Other expense (income), net		49,352			(65,384	)		70,642			(285,662	)


Total other expense		330,572			(232,388	)		931,629			125,596

Loss before income tax expense		(67,214	)		(848,336	)		(1,473,776	)		(3,768,013	)

Income tax (benefit) expense:
Current		10,500			(407,828	)		23,000			(1,629,201	)
Deferred		(25,168	)		133,138			(493,193	)		403,890


Total income tax benefit		(14,668	)		(274,690	)		(470,193	)		(1,225,311	)

Net loss	$	(52,546	)	$	(573,646	)	$	(1,003,583	)	$	(2,542,702	)


Net loss per common share (basic and diluted)	$	(0.01	)	$	(0.11	)	$	(0.19	)	$	(0.48	)


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 these condensed consolidated financial statements.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ~~(Unaudited)~~

	Three Months Ended
	November 30,
	2005			2004
Cash 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			330,535
Bad debt expense		105,264			85,517
Decrease 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			2,700,898
Decrease 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	)		1,056,743
Increase in accrued liabilities		239,889			119,060
Net 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	)		3,808,967
Payments on prepetition debt		(2,169	)		(2,079	)
(Payments) borrowings on post-petition debt		(973,583	)		30,437
Net cash (used in) provided by financing activities		(1,387,103	)		3,837,325
Net Increase in cash and cash equivalents		—			599,359
Cash and cash equivalents, beginning of period		—			173,313
Cash and cash equivalents, end of period	$	—		$	772,672

(Unaudited)

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


	Nine Months Ended
	May 31,			May 31,
	2006			2005

Cash Flows From Operating Activities
Net loss		($1,003,583	)		($2,542,702	)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization		1,084,320			1,116,483
Decrease in provision for bad debt expense		679,564			(64,917	)
(Decrease) increase in provision for losses of inventory		(13,277	)		99,906
Gain on sale of property, plant and equipment		(8,294	)		0
Change in deferred gain on sale of property		(128,056	)		(142,284	)
(Increase) decrease in deferred income tax (assets) liabilities		(493,193	)		403,890
Extinguishment of Debt		0			489,645
Decrease in trade accounts receivable		1,119,444			4,997,994
Decrease (increase) in income tax receivable		33,762			(1,746,880	)
Decrease in inventory		1,603,345			1,586,139
Increase in prepaid expenses and other		(142,861	)		(467,656	)
Decrease in non current assets		3,512			6,424
Increase (decrease) in accounts payable		292,729			(3,374,896	)
Increase (decrease) in accrued liabilities		127,592			(536,836	)


Net cash provided by (used) in operating activities		3,155,004			(175,690	)

Cash Flows From Investing Activities:
Additions to property, plant, and equipment		(125,681	)		(927,195	)
Proceeds from sale of property, plant & equipment		20,500			40,145


Net cash used in investing activities		(105,181	)		(887,050	)

Cash Flows From Financing Activities:
Net (payments) borrowings on line of credit		(276,722	)		1,395,025
Principal payments on prepetition debt		(9,215	)		(7,899	)
Principal (payments) borrowings on postpetition debt		(1,404,758	)		130,807


Net cash (used in) provided by financing activities		(1,690,695	)		1,517,933


Net increase in cash and cash equivalents		1,359,128			455,193


Cash and cash equivalents, beginning of period		0			173,313


Cash and cash equivalents, end of period	$	1,359,128		$	628,506

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

IMPRESO, INC. AND SUBSIDIARIES ~~NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

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 ~~November~~May 3031, ~~2005~~2006, and its results of operations for the three and nine months ended ~~November~~May 3031, ~~2005~~2006 and ~~November~~May 3031, ~~2004~~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 ~~November~~May 3031, ~~2005~~2006, ~~may~~ may not be indicative of results for the full fiscal year. The following unaudited Interim ~~Condensed~~ 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 ~~January~~December ~~2003~~2004, the ~~FASB~~Financial ~~issued~~Accounting ~~Interpretation~~Standards 46Board (“~~FIN 46~~FASB”), ~~“Consolidation~~issued ofSFAS ~~Variable Interest Entities~~No. 123R, “Share-Based Payment” an(“SFAS ~~Interpretation~~123R”). ofUnder ~~ARB~~this 51new standard, ~~which~~companies ~~expands~~will ~~upon~~no ~~and~~longer ~~strengthens~~be ~~existing~~able ~~accounting~~to ~~guidance~~account ~~concerning~~for share-based ~~when~~compensation atransactions ~~company~~using ~~should include in its financial statements~~ the ~~assets, liabilities~~intrinsic ~~and~~method ~~activities~~in ofaccordance ~~another~~with ~~entity.~~APB ~~A variable interest entity (“VIE”) does not share~~25. ~~economic risk and reward through typical equity ownership arrangements; instead~~Instead, ~~contractual~~companies ~~or other~~will ~~relationships~~be ~~distribute~~required ~~economic~~to ~~risks~~account ~~and~~for ~~rewards~~such ~~among~~transactions ~~equity~~using ~~holders~~a ~~and~~fair-value ~~other parties.~~based ~~Once~~method anand ~~entity is determined~~ to berecognize ~~a VIE,~~ the ~~party~~expense ~~with~~over the ~~controlling~~service ~~financial~~period. ~~interest,~~The ~~the primary~~Company ~~beneficiary,~~has isadopted ~~required~~SFAS to123R ~~consolidate~~for its ~~it.~~fiscal ~~FIN~~year 46ended ~~also~~August 31, ~~requires~~2006. ~~disclosures~~Adopting ~~about~~this ~~VIEs that~~standard ~~the~~does ~~Company is~~ not ~~required~~result ~~to consolidate but~~ in ~~which it has~~ a ~~significant~~material ~~variable~~impact ~~interest.~~on ~~This~~the ~~interpretation~~consolidated ~~was~~financial ~~effective~~position, atresults ~~the end~~ of ~~the~~operations ~~first~~or ~~reporting~~cash ~~period~~flows ~~that ended after March 15, 2004. The adoption~~ of ~~this statement in~~ the ~~quarter ended May 31, 2004, did not have a~~Company. ~~material~~

~~impact~~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 ~~statement~~position, results of operations or cash flows.

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:


	May 31, 2006			August 31, 2005
Finished goods	$	8,530,154		$	9,408,114
Raw materials		5,997,962			6,327,885
Supplies		981,431			1,385,293
Work-in-process		103,633			95,233
Allowance for obsolete inventory		(449,327	)		(462,604	)

Total	$	15,163,853		$	16,753,921

Inventories consisted of the following:

	November 30, 2005			August 31, 2005
Finished goods	$	9,794,023		$	9,408,114
Raw materials		5,132,712			6,327,885
Supplies		1,078,987			1,385,293
Work-in-process		115,093			95,233
Allowance for obsolete inventory		(462,342	)		(462,604	)
Total	$	15,658,473		$	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 ~~three~~quarter ~~months~~ ended November 30, 2004, the Company ceased depreciating the Kearneysville ~~buildings~~ buildings and building improvements and ~~has~~ 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~~On ~~Company~~June 29, ~~has~~2006, ~~determined~~ the ~~plan~~Company ofreceived ~~sale~~a ~~criteria~~letter ~~in the statement~~ of ~~Financial~~Intent ~~Accounting Standards~~to ~~No. 144,~~purchase ~~‘Accounting for~~ the ~~Impairment~~property orand ~~Disposal~~replied ~~of Long-Lived Assets’ has been met.~~with ~~Accordingly,~~a ~~the~~counter ~~assets~~offer ~~held~~ for ~~sale are classified as current and are carried at~~ the ~~lower~~sale of ~~their~~ ~~carrying~~the ~~or fair value, less costs to sell~~facility. ~~There were no write downs of inventory as a~~ ~~result of this valuation.~~

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.

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		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% and 6.50%, as of November 30, 2005 and August 31, 2005, respectively).	$	5,895,003	$	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.		178,633		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.		497,657		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.		146,004		149,972

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


	May 31,		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% (8.0% and 6.50%, as of May 31, 2006 and August 31, 2005, respectively).	$	6,029,632	$	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.		160,001		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.		454,202		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.		131,633		149,972

Notes payable to various commercial financial corporations, secured by equipment, interest rates ranging from 0% to 7.897%, maturing at various dates from June 2006 through July 2008.		62,720		96,428

The following is a summary of long-term debt and line of credit:	November 30,			August 31,
	May 31,			August 31,
	2005			2005
	2006			2005
Notes 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			96,428
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.		1,134,273			1,182,378
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.		1,170,580			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 May 31, 2006 and August 31, 2005) maturing September 2009.		4,208,470			4,318,812
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% as of November 30, 2005 and August 31, 2005) maturing September 2009.		4,282,737			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, (8.11% and 6.7%, respectively as of May 31, 2006 and August 31, 2005), maturing February 2009.		589,286			767,857
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, (7.14% and 6.7%, respectively as of November 30, 2005 and August 31, 2005), maturing February 2009.		714,286			767,857
Acquisition notes payable, unsecured, payable in monthly installments of $16,666, no interest, maturing February 2007.		217,593			296,463
Acquisition notes payable, unsecured, payable in monthly installments of $16,666, no interest, maturing February 2007.		249,927			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.		917,968			1,772,769
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.		982,266			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.		~~218~~210,~~000~~954			220,169
Total	$	14,~~420~~116,~~324~~732		$	15,807,427
Less Current Maturities		(67,~~854~~141,~~343~~728	)		(8,033,066	)
Long-Term Debt	$	76,~~565~~975,~~981~~004		$	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 in the agreement. The remaining availability under the revolving credit line was $3.71 million as of ~~November~~May 3031, ~~2005~~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. As of May 31, 2005, the Company was in compliance with all covenants.

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, 2005, the Company was in compliance with all covenants.

8. SUPPLEMENTAL CASH FLOW INFORMATION

Three Months ended	November 30, 2005		November 30, 2004
	Three Months Ended				Nine Months Ended
Cash paid during the period for:
	May 31,				May 31,
Interest		305,372		238,930
	2006		2005		2006		2005
Income taxes		2,866		93,801
Cash paid during the period for:
Interest	$	281,220	$	318,030	$	860,987	$	885,386
Income taxes	$	21,638	$	50,724	$	24,843	$	120,724

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~~LEGAL ~~OPTIONS~~ MATTERS

~~Options~~On ~~are~~September 18, ~~granted~~2002, atTST filed a lawsuit against a vendor in the ~~sole~~United ~~discretion~~States District Court for the Northern District of Texas — Dallas Division. TST’s general claim is that the ~~Stock~~vendor ~~Option~~breached ~~Committee~~a Distributor ofAgreement entered into with TST in several material respects, including the ~~Board~~vendor’s late delivery of ~~Directors~~ paper products, the vendor’s delivery of defective product, and the ~~Company~~vendor’s failure to properly credit TST’s accounts based upon these and other alleged breaches. The ~~outstanding~~vendor responded ~~options~~by ~~vest~~generally ~~ratably~~denying atTST’s ~~various~~claims ~~dates~~and ~~through~~asserting ~~2015~~a atcounterclaim anseeking ~~exercise~~to recover ~~price~~disputed ofaccounts ~~not~~receivable ~~less~~and ~~than~~damages ~~the~~related ~~fair~~to ~~market~~TST’s ~~value~~alleged atinterference with the ~~grant~~vendor’s relationship ~~date~~with its lender. The ~~options~~Trial ~~expire~~is ~~10 years~~set ~~after the~~for ~~grant date~~October 2006.

On November 5, 2003, the Company discovered the Company’s payroll administrator was fraudulently diverting Company funds into her personal bank accounts. In ~~addition~~November 2004, the ~~company~~Company ~~granted~~and ~~outside~~the insurer at the ~~plan~~time ~~options~~the loss was discovered executed a partial settlement without waiving each party’s rights to ~~purchase~~proceed ~~196,000~~to ~~shares~~suit or defend on the balance of ~~common~~the Company’s losses. Management ~~stock~~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 ~~employees~~$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, ~~1999-~~2001, 2002 and 2003, as salary expense. ~~The~~Partial ~~option~~reimbursement ~~shares~~from ~~vest~~the ~~ratably~~insurance company and the embezzler is ~~over~~recorded as a separate line item under operating income, embezzlement recovery, for the ~~two~~three ~~years~~and nine atmonths ~~various~~ended ~~dates~~May 31, ~~through~~2005. ~~2003~~In atAugust 2005, anwe ~~exercise~~filed ~~price~~suit ofin ~~not~~Dallas ~~less~~County ~~than~~to ~~fair~~pursue ~~market~~our claims ~~value~~against atpotentially liable parties for losses incurred. The parties are currently conducting discovery. TST and the ~~grant~~insurer ~~date~~have filed cross motions for summary judgment on TST’s claim against the insurance company. ~~These~~Arguments ~~options~~on ~~expire~~the ~~five~~motions ~~years~~will ~~after~~be heard by the ~~grant~~Court ~~date~~on July 17, 2006.

~~The~~In April 2004, TST filed a lawsuit in the 68th judicial district Dallas County against a former ~~following summarizes~~outside ~~information~~representative, ~~about~~alleging ~~stock~~breach ~~options~~of ~~outstanding~~fiduciary duty, tortuous interference with existing and ~~exercisable~~prospective asbusiness relations, and civil conspiracy. The lawsuit seeks to enforce the duties of ~~November 30,~~loyalty ~~2005~~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 set for August 2006.

~~Options~~The ~~Outstanding~~Company’s Corporate Income Tax Returns for the fiscal years ending August 31, 2004 are currently under examination by the Internal Revenue Service (“IRS”).

						Weighted Average
	#	Aggregate Intrinsic		Weighted Average		Remaining
	Options	Value		Exercise Price		Contractual Life
Options Outstanding	144,000		350,931		3.16		1.6
Options Exercisable	140,000		346,970		3.20		3.95

~~Effective~~On ~~September~~January 119, ~~2005~~2006, ~~the~~Impreso, ~~company~~Inc. ~~adopted~~ (the ~~provisions~~“Company”) ofwas ~~Statement~~served ofwith ~~Financial Accounting~~a ~~Standard~~shareholder Noderivative lawsuit. ~~123R,~~ ~~Share-Based~~This ~~Payment~~action, is one in which one of the Company’s shareholders (the “~~SFAS123R~~plaintiff shareholder”) ~~for~~is ~~its~~asserting ~~share-based~~rights ~~compensation plans~~derived from the Company. The ~~Company~~shareholder ~~previously~~derivative ~~accounted~~action ~~for~~does not ~~these~~seek ~~plans~~the ~~under~~recovery of damages from the ~~recognition~~Company, ~~and~~but ~~measurement~~rather asks that the Company recover damages ~~principals~~in an unspecified amount from five of ~~Accounting~~six ~~Principles~~members of the Company’s Board ~~Opinion~~of ~~No. 25,~~Directors ~~Accounting~~during ~~for~~a ~~Stock~~time period ~~Issued~~relevant to ~~Employees~~the petition’s allegations. The sixth, unnamed member of the Board of Directors ~~(“APB~~during ~~25”)~~the ~~and~~relevant ~~related~~time ~~interpretations~~period was appointed at the request of the plaintiff shareholder and ~~disclosure~~voted in ~~requirements~~favor ~~established~~of bythe ~~Statement~~transactions about which the petition complains; the structure of ~~Financial~~ ~~Accounting~~the ~~Standards~~Company’s water ~~No. 123~~bottling division, ~~Accounting~~the ~~for~~Chief ~~Stock-based~~Executive ~~Compensation,~~Officer’s ~~(“SFAS~~compensation ~~123”)~~package, asand the Company ~~amended~~conducting business with a company owned by ~~Statement~~the spouse of ~~Financial~~the ~~Accounting~~Chief ~~Standards~~Executive ~~No. 148,~~Officer ~~Accounting~~The ~~for~~parties are ~~Stock~~conducting ~~Based Compensation—Transition~~discovery. ~~and~~Trial ~~Disclosure~~is reset for March 2007.

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 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.

The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair-value recognition provisions of SFAS 123 to all of its share-based compensation awards for periods prior to the adoption of SFAS 123R, and the actual effect on net income and earnings per share for periods subsequent to adoption of SFAS 123R:

	November 30,			November 30,
Three Months Ended	2005			2004
Reported 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. 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 months ended November 30, 2004. 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 set for April 2006.

On July 9, 2004, TST received a preference claim demand from the Trustee of the estate of a former customer in the amount of $1.2 million. On June 2, 2005, TST was served with the preference lawsuit. The suit is based upon a gross preference demand and the Company believes subsequent to a full preference analysis and the Company’s utilization of various defenses, any resulting 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, 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 has indicated they will concede all issues and no adjustments will be made to those fiscal years under examination. Subsequent to the end of Fiscal 2005, the Company received notice that the Company’s Corporate Income Tax Return for the fiscal year ended August 31, 2004 is going to be examined by the IRS. This examination began in December 2005.

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.

In June 2005, a shareholder filed an action in the Court of Chancery of the state of Delaware seeking the books and records of the Company. We responded to the suit, executed an appropriate confidentiality agreement, and allowed the shareholder access to the requested documentation.

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. The tenant has indicated an interest in expanding their lease space.

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~~exists; 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 orand 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.

12Management’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.

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. The company

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 ~~November~~May 3031, ~~2004~~2005 and ~~November~~May 3031, ~~2005~~2006, we recorded customer rebates in the amount of $1.3 million and $1.2 million, respectively. For the nine months ended May 31, 2005 and May 31, 2006, we recorded customer rebates in the amount of $13.46 million and $~~994~~3.3 million,~~000,~~ respectively. The customer rebates are recorded as a decrease to sales.

For the three months ended ~~November~~May 3031, ~~2004~~2005 and ~~November~~May 3031, ~~2005~~2006, we recorded advertising allowances in the amount of $~~331~~267,000 and $240,000, respectively. ~~The~~For ~~advertising~~the ~~allowances~~nine ~~are~~months ended May 31, 2005 and May 31, 2006, we recorded asadvertising anallowances ~~SG&A~~in ~~expense~~the amount of $791,000 and $696,000, respectively. The advertising

~~For the three months ended November 30, 2004 and November 30, 2005, we recorded independent sales~~11 ~~commissions in the amount of $80,014 and $37,005, respectively. The independent sales commissions are recorded as an SG&A expense.~~

In the three months ended November 30, 2004, we re-classed independent sales commissions from cost of goods sold to selling, general, and administrative expenses in the amount of $80,014.

allowances are recorded as an SG&A expense.

For the three months ended May 31, 2005 and May 31, 2006, we recorded independent sales commissions in the amount of $195,000 and $24,000, respectively. For the nine months ended May 31, 2005 and May 31, 2006, we recorded independent sales commissions in the amount of $325,000 and $76,000, 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 ~~November~~May 3031, ~~2005~~2006, we ~~had~~ 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.

	Three Months Ended						Three Months Ended
	Nine Months Ended May 31, 2006						Nine Months Ended May 31, 2005
	November 30, 2005						November 30, 2004
	AMOUNT			PERCENT			AMOUNT			PERCENT
NET SALES BY INDUSTRY SEGMENT
Hardcopy imaging products	$	1751,~~557~~314,~~481~~686			9899.406	%	$	1958,~~976~~435,~~634~~505			100.00	%
Bottled water	$	~~283~~486,~~212~~829			10.694	%	$	0.00			0.00	%
Total	$	1751,~~840~~801,~~693~~515			100.00	%	$	1958,~~976~~435,~~634~~505			100.00	%
PRE TAX (LOSS) PROFIT FROM CONTINUING OPERATIONS
Hardcopy imaging products	$	(~~365~~1,~~812~~140,435	)		7277.138	%	$	(13,~~153~~768,~~165~~013	)		100.00	%
Bottled water	$	(~~141~~333,~~314~~341	)		2722.962	%	$	0.00			0.00	%
Total	$	(~~507~~1,~~126~~473,776	)		(100.00	)%	$	(13,~~153~~768,~~165~~013	)		100.00	%

	As Of November 30, 2005						As Of August 31, 2005
	Three Months Ended May 31,2006						Three Months Ended May 31,2005
TOTAL ASSETS BY INDUSTRY SEGMENT
	AMOUNT			PERCENT			AMOUNT			PERCENT
Hardcopy imaging products	$	37,405,489			93.4	%	$	39,043,670			93.4	%
NET SALES BY INDUSTRY SEGMENT
Bottled water	$	2,658,471			6.6	%	$	2,749,748			6.6	%
Hardcopy imaging products		17,704,937			99.23			19,829,734			100.00
Total	$	40,063,960			100.00	%	$	41,793,418			100.00	%
Bottled water		137,158			0.77			0.00			0.00
Total		17,842,095			100.00			19,829,734			100.00
PRE TAX (LOSS) PROFIT FROM CONTINUING OPERATIONS
Hardcopy imaging products		(7,631	)		11.35			(848,336	)		100.00
Bottled water		(59,583	)		88.65			0.00			0.00
Total		(67,214	)		100.00			(848,336	)		100.00

~~Results of Operations for the Interim Periods Ended November 30, 2005 and November 30, 2004.~~12

As a result of the decrease in volume of purchases by key customers in January 2005, representing sales of approximately 29%, or $30 million of Fiscal 2004 revenue, the Company began a plan to downsize its operations and reduce costs to return to profitability. In the second, third and fourth quarter of Fiscal 2005, we were successful in completing and implementing a majority of the plan’s key elements; however the plan’s impact to the profitability of operations was offset by historically unprecedented extraordinary

increases in our freight costs. The increased freight costs are attributable to increases in fuel costs, but in addition, the freight industry ratio of available trucks to requested routes fell to a historical low. The trend, which began at the end of Fiscal 2004, continued through our first quarter of the year ending August 31, 2006. Revised freight policies were implemented to address this expense; however we believe that the freight cost increases may continue to have a material adverse effect on our financial position and results of operations in the year ending August 31, 2006 (“Fiscal 2006”).


	As Of May 31, 2006				As Of August 31, 2005
TOTAL ASSETS BY INDUSTRY SEGMENT
Hardcopy imaging products		36,648,617	93.74			39,043,670	93.42
Bottled water		2,447,772	6.26			2,749,748	6.58

Total	$	39,096,389	100.00	%	$	41,793,418	100.00	%

~~Net~~Results ~~Sales —~~of ~~Net~~Operations ~~sales~~for ~~decreased from $20 million in~~ the ~~three~~Interim ~~months~~Periods ~~ended~~Ended ~~November~~May 3031, ~~2004 to $18 million in the three months ended November 30, 2005 (“First Quarter~~ 2006~~”),~~ aand ~~decrease of $2.1 million or 10.7%. Net sales decreased in the three month period ended November~~May 3031, 2005~~, as compared to the corresponding period of the prior year, as a result of the decrease in volume of purchases by key customers~~.

~~Gross Profit~~Net Sales—Net ~~Gross~~sales ~~profit~~decreased ~~increased~~ from $~~980,000~~20 million in the three months ended ~~November~~May 3031, ~~2004,~~ 2005 to $~~1.6~~ 18 million in the ~~First~~three months ended May 31, 2006 (“Third Quarter 2006”), ana ~~increase~~decrease of ~~63.6~~$2 million or 10%. ~~Gross~~Net ~~profit~~sales ~~margin~~decreased ~~for~~from ~~First Quarter~~$58 million ~~2006~~in ~~increased~~the tonine 9%months asended ~~compared~~May 31, 2005, to ~~4.9~~$52 million in ~~% for~~ the ~~three~~nine ~~month~~months ~~period~~ ended ~~November~~May 3031, ~~2004.~~ ~~The~~2006, ~~increase~~a indecrease ~~gross~~of ~~profit~~$7 million ~~and~~or ~~gross~~11.4%. ~~profit~~Net ~~margin~~sales ~~for~~decreased in the three and nine month ~~period~~periods ended ~~November~~ May 3031, ~~2005~~2006, ~~resulted~~as ~~from~~compared to the ~~implementation~~corresponding ofperiods of the ~~cost~~prior ~~reduction~~year, ~~savings~~due ~~plan~~to ~~and~~ a ~~finished~~ ~~goods~~shrinking ~~price~~market ~~increase~~ in the ~~third~~continuous ~~quarter~~business ~~Fiscal~~forms ~~2005,~~segment ~~partially~~of ~~offset~~our byindustry and ~~higher~~loss ~~fuel~~of ~~and freight~~customers ~~costs~~resulting from our increased finished goods pricing.

~~Selling,~~Gross ~~General, and Administrative Expenses~~ Profit-— ~~SG&A~~Gross ~~expenses~~profit ~~decreased~~increased from $21.3 1 million in the three months ended ~~November~~May 3031, ~~2004~~2005, to $12.81 million in the ~~First~~Third Quarter 2006., ~~SG&A~~an ~~expenses~~increase ~~as a percentage~~ of ~~net~~91.6%. ~~sales~~Gross ~~decreased~~profit increased from 11$2.4%7 million in the ~~three~~nine months ended ~~November~~May 3031, ~~2004~~2005, to 10$4.3% 9 million in the ~~First~~nine ~~Quarter~~months ended May 31, 2006, an increase of 86.5%. ~~The~~Gross ~~decrease~~profit inmargin ~~SG&A~~for asthe aThird ~~dollar~~Quarter ~~amount~~2006 ~~and~~increased asto a11.8% ~~percentage~~as compared ofto ~~sales~~5.5 % for the three month period ended ~~November~~May 3031, 2005. Gross profit margin for the nine month period ended May 31, is2006, ~~due~~increased to ~~reduction~~9.5% as compared to 4.5% for the nine month period ended May 31, 2005. The increases in ~~labor~~gross profit and ~~benefit~~gross ~~expenses~~profit margin for the three and nine month periods ended May 31, 2006, resulted from increased finished goods pricing.

~~Interest Expense~~Selling, —General, ~~Interest~~and ~~expense~~Administrative ~~increased~~Expenses—SG&A expenses decreased from $~~239,000~~2.2 million in the three months ended ~~November~~May 3031, ~~2004,~~ 2005 to $~~305,000 or 27~~1.89 million %, in ~~First~~the Third Quarter 2006. ~~The~~SG&A ~~increase~~expenses decreased from $6.7 million in ~~interest~~the ~~expense~~nine bymonths ~~$66~~ended May 31,~~000~~ 2005 to $5.6 million in the nine months ended May 31, 2006. In the ~~First~~three ~~Quarter~~and nine month periods ended May 31, 2006, the decrease in SG&A expenses resulted from reductions in employee benefits, and decreased travel and entertainment. SG&A expenses as ~~compared~~a percentage of net sales decreased from 11.2 % in the three months ended May 31, 2005, to 10.5 % in the ~~corresponding~~Third ~~period~~Quarter 2006. SG&A expenses as a percentage of net sales decreased from 11.5 % in the ~~prior~~nine ~~year~~months isended ~~due~~May 31, 2005, to 10.8 % in the nine months ended May 31, 2006. ~~increased~~The ~~borrowings~~decrease toin ~~fund~~SG&A ~~the~~as ~~purchase~~a percentage of ~~our~~sales ~~water~~for ~~bottling~~three ~~equipment~~ and ~~increases~~nine month periods ended May 31, 2006, as compared to prior year periods, resulted from reductions in ~~the~~employee benefits, and decreased ~~prime~~travel ~~interest~~and ~~rate~~entertainment.

~~Income Taxes~~Interest Expense—Interest ~~Income~~expense ~~tax benefit~~ decreased from a$323,000 ~~tax~~in ~~benefit~~the ofthree months ended May 31, 2005, to $~~393~~281,000, or 12.8%, in ~~First~~Third Quarter ~~2005 to~~2006. aInterest ~~tax~~expense ~~benefit~~decreased offrom $~~172~~901,000 in the nine ~~First~~months ~~Quarter~~ended ~~2006.~~May 31, ~~The~~2005, ~~decrease~~to in$861,000 ~~income~~or ~~tax~~4.4 ~~benefit~~%, ~~for First~~in ~~Quarter~~the ~~2006,~~nine ismonths ~~due~~ended toMay 31, a2006. ~~reduction~~The decrease of ~~losses~~Interest inExpense for the ~~First~~three ~~Quarter~~and ofnine month periods ended May 31, 2006, as compared to the prior year periods resulted from using a lower interest rate letter of credit to pay down the ~~corresponding~~principal ~~period~~on ofa higher rate financing lease, and lower borrowings on the ~~prior~~line ~~year~~of credit.

~~The~~Income ~~cessation~~Taxes-— ofIncome ~~sales~~tax ofbenefit ~~continuous~~decreased ~~business~~from ~~forms~~$275,000 tofor athe ~~significant~~three ~~customer~~months ~~has~~ended ~~had~~May 31, ~~a material~~2005, ~~impact~~to on$15,000 ~~our~~in ~~net~~Third ~~sales~~Quarter ~~and~~2006. ~~revenues,~~Income ~~and~~tax ~~adversely~~benefit ~~affected~~decreased ~~our~~from ~~liquidity,~~$1.2 million ~~capital~~for ~~resources~~the ~~and~~nine ~~results~~months ofended ~~operations.~~May 31, We2005, ~~are~~to ~~currently~~$470,000 ~~working~~in tothe ~~replace~~nine ~~this~~months ~~business~~ended May 31, ~~with~~2006. ~~other~~The ~~volume~~decreases in ~~purchasers~~income oftax ~~this~~benefit ~~product.~~for WeThird ~~have~~Quarter ~~also~~2006 ~~been~~and ~~successful~~the innine ~~introducing~~month ~~other~~period ~~product~~ended ~~lines~~May 31, to2006, ~~this~~as compared ~~customer~~to ~~and~~the ~~will~~corresponding ~~continue~~periods toof ~~try~~the ~~and~~prior ~~recapture~~year, ~~the~~is ~~sale~~due ofto ~~continuous~~a ~~business~~reduction ~~forms~~in tothe ~~this~~deferred asset ~~company~~resulting from NOL carry forwards.

~~The decline in the market of continuous feed business forms has begun to materially impact our net~~13 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

The decline in the continuous feed business forms market is materially impacting our net sales and revenues, and adversely affecting our liquidity, capital resources and results of operations. Since January 2005, the Company has materially reduced operating costs by reducing the workforce and employee benefits, selling and subleasing real estate, and implementing revised pricing policies which includes an energy surcharge.

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. In the quarter ended May 31, 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. 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 began in February 2006. The Company anticipates income from these services of approximately $6,000 to $10,000 per month.

Management has partially compensated for the maturity and decline of the continuous feed business forms segment of our sales 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. Our diversification into another product category, bottled spring water, 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.

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% (78.0 % as of ~~November~~May 3031, ~~2005~~2006), are based upon specified percentages of eligible accounts receivable ~~and~~ and inventories. As of ~~November~~May 3031, ~~2005~~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 $~~5.9~~ 6 million at ~~November~~May 3031, ~~2005~~2006, a decrease of $~~411~~300,000, or 64.58%. ~~The~~A ~~decreased borrowing primarily resulted from~~ reduction of inventory ~~and~~primarily ~~sale~~contributed ofto our ~~the~~decreased ~~Pennsylvania building~~borrowing.

Working capital decreased to $119.18 million as of ~~November~~May 3031, ~~2005~~2006, from $11.4 million at August 31, 2005. This represented a decrease of 214%. This decrease is primarily attributable to the $1.1 6 million decrease in inventory .

~~Net Cash Provided by/Used in Operating, Investing, and Financing Activities~~14

Our operating activities provided $1.4 million of cash in the three month period ended November 30, 2005 and cash used was $2.9 million in the three month period ended November 30, 2004. Operating cash flows for the three month period ended November 30, 2005 were provided primarily by reductions in inventories.

Cash used in investing activities was $21,000 for the three month period ended November 30, 2005. Cash used in investing activities was $329,000 for the three month period ended November 30, 2004. Cash used in investing activities for the three month period ended November 30, 2005, were due to expenditures for property, plant and equipment associated with the spring water bottling facility.

Cash used in financing activities was $1.4 million for the three month period ended November 30, 2005. Cash provided by financing activities was $3.8 million for the three month period ended November 30, 2004. Cash used in financing activities for the three month period ended November 30, 2005, was primarily used to pay down the line of credit, and a letter of credit which was collateral on the water bottling equipment lease.

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

Our operating activities provided $1.8 million of cash in the nine month period ended May 31, 2006 and used $176,000, in the nine month period ended May 31, 2005. Operating cash flows for the nine month period ended May 31, 2005 was used primarily for reductions in accounts payable. Cash provided by operations for the nine month period ended May 31, 2006, was primarily the result of reductions in inventory and accounts receivable.

Cash used in investing activities was $105,000 for the nine month period ended May 31, 2006. Cash used in investing activities was $887,000 for the nine month period ended May 31, 2005. Cash used in investing activities for the nine month period ended May 31, 2005, was due to expenditures for property, plant and equipment associated with the spring water bottling facility, partially offset by proceeds from asset dispositions.

Cash used in financing activities was $1.7 million for the nine month period ended May 31, 2006. Cash provided by financing activities was $1.5 million for the nine month period ended May 31, 2005. Cash provided by financing activities for the nine month period ended May 31, 2005, was due to increased borrowings on our line of credit and financed expenditures associated with our new bottled spring water operations. Cash used in financing activities for the nine month period ended May 31, 2006, was primarily used to pay down long term debt, the line of credit, and a letter of credit which was collateral on the water bottling equipment lease.

Capital Expenditures

During the ~~three~~nine month period ended ~~November~~May 3031, ~~2005~~2006, we incurred $21126,000 in capital expenditures: ~~for~~$33,000 in upgrading equipment for our water bottling operations, and $93,000 on upgrades to building and plant equipment. During the ~~three~~nine month period ended ~~November~~May 3031, ~~2004~~ 2005, we spent $~~329~~784,000 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~~300,000 during Fiscal 2006.

Future Liquidity

~~The~~Escalating ~~cessation~~freight, offuel, ~~sales~~and ofcertain ~~continuous~~material ~~business~~costs ~~forms~~which towere ~~key~~not ~~customers~~fully ~~which~~passed ~~decreased~~through to our ~~receivables;~~customers ~~start~~adversely upimpacted ~~operations~~our atliquidity ~~our~~and ~~spring~~capital ~~water~~resources ~~bottling~~in ~~facility;~~the ~~and~~First ~~escalating~~Quarter ~~freight,~~2006. ~~fuel,~~Management addressed these issues and ~~certain~~believes ~~material~~these costs ~~which~~are ~~have~~now ~~not~~being ~~been~~adequately captured. We were not fully ~~passed~~utilizing ~~through~~all toof ~~our~~the ~~customers~~real ~~has adversely~~estate ~~impacted~~of our ~~liquidity~~owned and ~~capital~~leased ~~resources~~facilities and in ~~the~~early 2006, ~~first~~two ~~quarter~~subtenants ofexecuted ~~the~~leases ~~year~~to ~~ending August 31,~~occupy ~~2006.~~material ~~Although~~portions ~~one~~of ~~empty~~our ~~building~~Chambersburg, ~~was~~Pennsylvania plant. ~~sold~~Our inWest ~~August 2005,~~Virginia ~~one~~facility ~~building~~ remains empty and on the market to be sold. As of the date of filing this Form 10-Q, a letter of intent has been received and a counter offer extended, but no definitive ~~contract~~agreement isfor ~~pending~~sale has been reached on this facility. Management ishas ~~contemplating~~engaged ~~the~~a ~~sale~~broker ofto sell another owned facility, with a possible lease- back or move to another less expensive location. The water bottling facility is operating ~~and~~ ~~we are selling water product. Absent unforeseen circumstances these known trends~~ and ~~uncertainties~~ ~~indicates~~May 2006 ~~that~~reflected ~~our~~a ~~performance~~75% ~~may~~increase ~~stabilize~~ in our ~~Fiscal~~bottled ~~2006~~water sales from April ~~year~~2006.

Based upon current levels of operations and planned improvements in our operating performance, management believes that cash flow from operations together with our tax refund, the potential ~~liquidation~~ 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~~next twelve ~~of fiscal 2006~~months. 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.~~

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.

~~Based~~As ~~upon current levels~~ of ~~operations~~May 31, ~~and~~2006, ~~planned~~we ~~improvements~~did innot ~~our~~own ~~operating~~derivative ~~performance, management~~or ~~believes~~other ~~that~~financial ~~cash~~instruments ~~flow~~for ~~from~~trading ~~operations~~or speculative ~~together~~purposes. ~~with~~We ~~liquidation~~do ofnot ~~our~~use ~~building~~financial instruments and ~~inventory~~, ~~and~~therefore, ~~available~~the ~~borrowings~~implementation ~~under~~of Statement ~~our~~of ~~revolving~~Financial ~~line~~Accounting ofStandards ~~credit~~No. 133, ~~will~~“Accounting befor ~~adequate~~Derivative toInstruments ~~meet our~~and ~~anticipated~~Hedging ~~requirements~~Activities” ~~for~~did ~~working~~not ~~capital~~have ~~and~~a ~~debt~~material ~~service~~impact ~~through~~on ~~the~~our ~~end~~financial ofposition ~~fiscal~~or ~~2006~~results of operations.

As of November 30, 2005, we did not own derivative or other financial instruments for trading or speculative purposes. We do not use financial instruments and, therefore, the implementation of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” did not have a material impact on our financial position or results of operations.

SUPPLY AND INVENTORY: HARDCOPY IMAGING PRODUCTS

WeOver ~~believe~~the ~~that~~past itdecade isdomestic ~~necessary~~mills ~~for~~have ~~TST~~been toconsolidating ~~maintain~~and aworking ~~sufficient~~at ~~inventory~~curtailing ofsupply ~~finished~~by closing ~~goods~~their ~~and~~older, less efficient production facilities. In the past nine months the mills have ~~raw~~been ~~materials~~affected by the same increases we have experienced, such as increased energy costs to ~~adequately~~operate and ~~service~~higher ~~its~~costs ~~customers.~~in Asfuel afor ~~result~~transportation. Most of the ~~loss~~mills ofin ~~continuous~~the ~~forms~~Untied States are on ~~business~~allocation ~~from~~or ~~key~~reserve ~~customers~~system, inunable ~~January 2005,~~to ~~management~~meet ~~implemented~~current ~~another~~demand. ~~phase~~Backlogs ofat anthe ~~inventory~~mills are ~~reduction~~approximately ~~program~~30 to 45 days. ~~Our~~Certain ~~inventories~~mills ~~decreased~~have ~~from~~stopped ~~$16.8 million~~manufacturing ascertain grades of ~~November 31~~paper, focusing ~~2004,~~resources toon ~~$15~~the most profitable items.~~7 million~~ asIn ofaddition ~~November 30~~to these events, ~~2005~~recent weakness of the U.S. ~~Management~~dollar isand ~~continuing~~increased todemand ~~streamline~~for ~~ordering~~paper ~~cycles~~in other countries has impacted and ~~SKUs~~reduced the amount of foreign paper being imported into the United States. In January and March of 2006, ~~but~~increases ~~does~~in ~~not~~pricing ~~intend~~on toraw ~~further~~paper ~~reduce~~materials ~~inventory~~were ~~since~~implemented ~~meeting~~by ~~their~~the ~~current~~domestic ~~goals~~mills. ~~for~~The ~~inventory~~Company in ~~levels~~response, implemented finished goods pricing immediately subsequent to those increases.

17It 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.

~~Table~~TST bears the risk of ~~Contents~~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 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.

Pricing for certain components of our finished goods increased in First Quarter 2006. Not all of these increases were effectively passed through to our customers, and there can be no assurance that we will be able to increase finished goods pricing at the same pace as the increases in component materials. 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 in increase in 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

InThe ~~Fiscal~~shelf ~~2005,~~life of water is shorter than the other products we ~~started~~carry, ~~building~~therefore our bottled water inventory atrequires ~~our~~more ~~one~~frequent ~~bottling~~inventory ~~and~~turns ~~four~~than hardcopy ~~image~~ ~~manufacturing~~imaging ~~facilities~~products. WeIn doaddition, we do not store bottled water products at public warehouses. In Fiscal 2005, Hurricanes Katrina and Rita created a large demand for our water products and substantially depleted our ~~initial~~ inventory. ~~Water~~We ~~inventory requires more frequent inventory turns than~~spent ~~hardcopy imaging products, since~~ the ~~shelf~~winter ~~life~~months ofrebuilding ~~water is shorter. The increase in~~ our ~~sales~~ created by the hurricanes at the end of the high demand season for bottled water will allow us to build fresh water inventory for March 2006, which is the beginning of the next high demand season in the bottled water product cycle.

~~Bottling and distribution costs, including plastic, fuel, and freight charges increased in First~~16 Quarter 2006. Not all of these increases were effectively passed through to our customers, and 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 may continue to increase in Fiscal 2006.

Effective December 1, 2004, TST executed a long term real estate lease and water supply agreement with Alexa Springs Water Company, a company owned by stockholders of TST. Under the ten year water supply contract TST executed, Alexa Springs Water Company must sell to TST and TST must purchase all of the production of the springs. TST also executed a ten year lease that runs concurrently with the water supply agreement on the land and buildings, approximately 34,200 square feet, which house the springs. Both of these agreements have an automatic renewal of second ten year terms if not terminated in accordance with the agreements. Currently the Alexa Springs are producing substantially more spring water than we are bottling and selling.

MARKET CONDITIONS OF TST

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~~bottled ~~customers.~~water ~~There~~inventory ~~can~~for besummer no2006, ~~assurance~~the ~~that~~high ~~purchases~~demand ~~by these~~season ~~customers will remain at significant levels. TST may~~ in the ~~future~~bottled bewater ~~dependent~~product ~~on these or other significant customers~~cycle. ~~The~~Currently ~~loss~~the ofAlexa ~~any~~Springs ~~other~~are ~~significant~~producing ~~customer~~substantially ~~could materially adversely~~more ~~affect~~spring ~~our~~water ~~financial~~than ~~position,~~we ~~results~~are ofbottling ~~operations~~ and ~~cash flows~~selling.

~~Historically,~~Bottling ~~the~~and ~~primary~~distribution ~~product~~costs, ~~produced~~including byplastic, ~~the~~fuel, ~~Company~~and ~~was~~freight ~~continuous~~charges ~~feed~~which ~~business~~increased ~~forms. In~~in ~~Fiscal~~the ~~2005,~~First ~~for~~Quarter ~~the~~2006, ~~first~~remained ~~time~~stable in ~~our~~the ~~history~~second ofand ~~almost~~third ~~30 years,~~quarters ~~the sales~~ of ~~continuous~~2006. ~~forms fell~~While tonot ~~below~~all ~~50%~~ of these ~~the~~increases ~~gross~~were ~~revenue~~effectively ~~for~~passed ~~all~~through ~~products.~~to ~~Management~~our ~~believes~~customers ~~that~~in ~~the~~First ~~total~~Quarter ~~market for business forms~~2006, ~~which~~we ~~declined~~were successful in ~~2005,~~getting ~~will~~these ~~continue~~increases through to ~~decline~~a inmajority ~~2006. Our percentage~~ of ~~revenue~~ ~~derived~~our ~~from~~customers ~~this product decreased from 53%~~ in the ~~year~~second ~~ended August 31, 2004 (“Fiscal~~and ~~2004”)~~third toquarters ~~36.9%~~of ~~in Fiscal 2005~~2006. ~~Management~~Although ~~expects~~we ~~this~~were ~~product~~successful ~~category’s contribution percentage to sales to stabilize~~ in ~~Fiscal~~getting ~~2006,~~these ~~partially~~increased ~~due~~costs through to ~~the~~a majority ~~recognition~~ of ~~the~~our ~~loss~~customers ofin ~~portions or all~~ the ~~business~~three ofmonths ~~key~~ended ~~customers~~May 31, in2006, ~~Fiscal~~there ~~2005~~can ~~and~~be ~~management’s~~no ~~anticipation~~assurance ofthat ~~retaining current~~we ~~customers,~~will orbe ~~regaining~~able ~~lost~~to ~~business~~increase infinished ~~this~~goods ~~product~~pricing ~~category.~~at ~~Recently,~~the ~~engineering/~~same ~~wide~~pace ~~format rolls~~as ~~and~~these ~~Point~~component ofcategories increase. ~~Sales~~Our ~~Rolls~~inability ~~increased~~ to ~~become~~increase ~~the~~finished ~~largest~~goods ~~segment~~pricing ofthat ~~our~~includes ~~business.~~all ~~This~~of isthe amanufacturing ~~significant~~increased ~~milestone~~costs, ofcould ~~our~~materially ~~transition~~adversely ~~into~~effect ~~what~~our ~~management~~financial ~~believes~~position isand ~~the~~results ~~greatest~~of ~~growth~~operation. ~~product~~We ~~categories~~believe ofthat ~~hard~~bottling ~~copy~~and ~~imaging~~distribution ~~products.~~costs, ~~The~~including ~~Company~~plastic, isfuel, ~~also~~and ~~emphasizing~~freight ~~its~~charges ~~marketing~~will ~~efforts~~remain onstable ~~these~~for ~~more~~the ~~profitable~~remainder ~~portions~~ of ~~the~~Fiscal ~~business~~2006.

~~The~~MARKET ~~loss~~CONDITIONS ofOF ~~significant customers, mergers of customers, and loss of portions of business from~~TST ~~certain customers has reduced sales in Fiscal 2005, but management believes sales revenue will stabilize in Fiscal 2006 at Fiscal 2005 levels.~~

~~The~~In ~~entrance~~the ~~into~~three ~~the~~months ~~bottled~~ended ~~water~~May 31, ~~business~~2006, iswe ~~significant~~experienced asa wesignificant ~~begin~~increase ~~the~~in ~~diversification~~raw ofpaper ~~our~~material ~~product~~costs ~~offerings~~in ~~outside~~our ofhard ~~the~~copy ~~hardcopy~~ imaging ~~products.~~segment ~~The introduction~~ of ~~water into~~ our ~~paper~~ business. isSubstantially anmost ~~ideal~~of ~~companion~~the ~~sale~~raw aspaper material ~~the~~and ~~distribution~~component ~~model~~increased ~~for~~costs ~~our~~are ~~water~~successfully ~~products~~being ~~is substantially~~passed ~~similar~~through to ~~our~~a ~~paper~~majority ~~products. Many~~ of ~~the~~ our customers. ~~who~~The ~~are~~finished ~~currently~~goods ~~purchasing business~~pricing ~~imaging~~increase ~~supplies~~has ~~from~~contributed usto ~~also buy bottled water. The weight and dimensions of~~ a ~~pallet~~reduction of ~~water~~ ~~and paper~~sales, ~~and~~but ~~therefore~~it ~~the costs, are~~ also ~~similar. The introduction of water should expand~~ ~~our~~contributed ~~sales~~ to ~~our~~an ~~existing~~increased ~~customers.~~gross ~~The~~profit ~~bottled water industry has experienced phenomenal growth in the past few years~~margin.

InAlthough ~~the~~TST ~~water~~has ~~industry~~specialized ~~we plan to effectively compete~~ in ~~the~~select ~~wholesale~~markets ~~market~~and byhas ~~offering competitive~~emphasized ~~price~~service ~~points on our water products~~ and ~~bundled distribution strategies. We have also~~long-term ~~targeted~~relationships ~~the small~~ to ~~mid~~meet ~~range~~customer ~~size~~needs ~~private~~more ~~label~~effectively, ~~market~~there asare ~~the~~no ~~niche~~long-term ~~for us to gain market share~~contractual inrelationships ~~the~~between ~~bottled~~it ~~water industry. The size~~ and ~~configuration~~any of ~~our~~its ~~operations~~customers. ~~accommodates~~There ~~smaller batch~~can ~~runs~~be ofno ~~individualized~~assurance ~~labels,~~that ~~which~~purchases ~~may~~by these becustomers ~~economically~~will ~~disadvantageous~~remain ~~for~~at ~~larger companies~~significant levels. WeTST ~~believe~~may in the ~~growing~~future ~~trend~~be ofdependent ~~businesses~~on ~~offering~~these ~~their clientele bottled water with~~or ~~their~~other ~~name~~significant oncustomers. ~~the~~The ~~label~~loss asof ~~promotional~~any ~~giveaway~~other orsignificant ~~for~~customer ~~resale~~could ~~will~~materially ~~contribute~~adversely affect toour ~~the~~financial ~~increased sales~~position, inresults ~~the~~of ~~bottled~~operations ~~water~~and ~~division~~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 expanded 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 a wider range of use and convenience for certain end users.

We have received a material increase in orders and revenue has increased 100% in bottled water sales in the three months ended May 31, 2006, as compared to the three months ended February 28, 2006. We are also seeing an increase of repeat orders which are more profitable. We have produced approximately 300 private label projects in the twelve months prior to June 1, 2006. In calendar year 2006, the industry predicts bottled water sales may 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 2008.

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 ~~November~~May 3031, ~~2005~~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 ~~November~~May 3031, ~~2005~~2006, there ~~was~~ 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 ~~November~~May 3031, ~~2005~~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 ~~November~~May 3031, ~~2005~~ 2006 that ~~have materially affected or are reasonably likely to materially affect, the Company’s~~ ~~internal control over financial reporting.~~

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.

2119

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~~July 17, 2006


		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

2220

Exhibits

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.

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Filing Compare · IMPRESO INC