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 ~~May~~November 3130, 2005


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

For the transition period ~~_____________to __________________~~ to

Commission File Number 000-29883

Impreso, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 75-2849585 (I.R.S. Employer Identification No.)


Delaware		75-2849585
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

652 Southwestern Boulevard
Coppell, Texas 75019
(Address of principal executive offices)

(972) 462-0100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þo No oþ

Indicate by check mark whether the registrant is ana ~~accelerated~~shell ~~filer~~company (as defined in ~~Exchange Act~~ Rule 12b-2 of the Exchange Act). Yes o No þ

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.

Class of Common Stock		Shares outstanding at ~~July~~May 1417, 2005
$0.01 Par Value		5,278,780

IMPRESO, INC. AND SUBSIDIARIES FORM 10-Q ~~May~~November 3130, 2005

INDEX

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:
	Interim Condensed Consolidated Balance Sheets as of May 31, 2005 (Unaudited) and August 31, 2004		1
	Interim Condensed Consolidated Balance Sheets as of November 30, 2005 (Unaudited) and August 31, 2005		1
	Interim Condensed Consolidated Statements of Operations for the Three and Nine Months Ended May 31, 2005 and May 31, 2004 (Unaudited)		3
	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 Cash Flows for the Nine Months Ended May 31, 2005 and May 31, 2004 (Unaudited)		4
	Interim Condensed Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2005 and November 30, 2004 (Unaudited)		4
	Notes to Interim Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		1920
Item 4.	Controls and Procedures		1920
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		1920
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2021
Item 3.	Defaults upon Senior Securities 20		2021
Item 4.	Submission of Matters to a vote of Security Holders		2021
Item 5.	Other Information		2021
Item 6.	Exhibits		2021
SIGNATURES			2122
INDEX TO EXHIBITS			2223
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)

	May 31,			August 31,
	November 30,			August 31,
	2005			~~2004~~2005
Current assets:
Cash and cash equivalents	$	~~628,506~~—		$	~~173,313~~—
Trade accounts receivable, net of allowance for doubtful accounts of $1,065,398 at May 31, 2005 and $1,130,315 as of August 31, 2004		7,733,356			12,666,433
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
Refundable income taxes		1,746,880			—
Receivable, IRS		1,221,532			1,255,294
Inventories, net of reserves		2015,~~957~~658,~~513~~473			2216,~~643~~753,~~558~~921
Prepaid expenses and other		~~797~~329,~~695~~656			~~330~~217,~~039~~183
Assets held for sale		21,~~141~~278,~~289~~872			—1,278,872
Deferred income tax assets		~~683~~870,~~312~~093			~~736~~828,~~810~~092
Total current assets		3427,~~688~~955,~~551~~366			3629,~~550~~329,~~153~~681
Property, plant and equipment, at cost		27,~~164~~127,~~340~~440			2927,~~417~~174,~~303~~188
Less-Accumulated depreciation		(1415,~~413~~091,~~473~~859	)		(14,~~295~~784,~~714~~634	)
Net property, plant and equipment		12,~~750~~035,~~867~~581			1512,~~121~~389,~~589~~554
Noncurrent assets
Other assets		7573,~~354~~013			8174,~~778~~183
Deferred income tax assets		317,948			318,718
Total assets	$	40,063,960		$	41,793,418
Total noncurrent assets		393,302			400,496
Total assets	$	47,832,720		$	52,072,238

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)

	May 31,			August 31,
	November 30,			August 31,
	2005			~~2004~~2005
Current liabilities:
Accounts payable	$	97,~~336~~602,~~862~~367		$	128,~~711~~182,~~758~~928
Accrued liabilities		716,076			987,921
Checks issued in excess of deposits		392,339			—
Accrued commissions		1,598,707			1,863,698
Accrued liabilities		827,470			796,834
Current maturities of long-term debt		1,230,626			1,407,070
Accrued commissions		1,283,522			954,231
Line of credit		8,246,504			6,851,479
Current maturities of long-term debt		950,581			1,718,028
Current maturities of prepetition debt		8,609			8,384
Line of credit		5,895,003			6,306,354
Total current liabilities		21,137,384			23,830,310
Current maturities of prepetition debt		8,759			8,684
Deferred income tax liability		1,348,352			998,730
Total current liabilities		16,960,041			17,967,059
Deferred gain		654,512			796,796
Deferred income tax liability		158,427			295,016
Long-term debt, net of current maturities		8,968,124			8,171,228
Deferred gain		569,141			611,826
Long-term portion of prepetition debt, net of current maturities		212,565			220,689
Long-term debt, net of current maturities		7,356,740			7,562,876
Total liabilities		32,320,937			34,017,753
Long-term portion of prepetition debt, net of current maturities		209,241			211,485
Total liabilities		25,253,590			26,648,262
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized;		—			—
0 shares issued and outstanding
Common stock, $.01 par value; 15,000,000 shares authorized; 5,292,780 issued and 5,278,780 outstanding		52,928			52,928
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		98,~~144~~442,~~091~~678			118,~~686~~777,~~793~~464
Total stockholders’ equity		1514,~~511~~810,~~783~~370			1815,~~054~~145,~~485~~156
Total liabilities and stockholders’ equity	$	4740,~~832~~063,~~720~~960		$	5241,~~072~~793,~~238~~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)

(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

	Three Months Ended						Nine Months Ended
	May 31,			May 31			May 31,			May 31
	2005			2004			2005			2004
Net sales	$	19,829,734		$	25,475,573		$	58,435,505		$	77,885,681
Cost of sales		18,733,138			21,959,557			55,782,864			67,362,876
Gross profit		1,096,596			3,516,016			2,652,641		$	10,522,805
Gain on sale of assets		(42,685	)		(14,229	)		(142,285	)		(14,229	)
Selling, general and administrative expense		2,220,005			2,626,119			6,728,183			7,791,543
Operating (loss) income		(1,080,724	)		904,126			(3,933,257	)		2,745,491
Other (income) expenses:
Interest expense		322,641			243,988			900,903			876,085
Embezzlement recovery		—			—			(290,840	)		—
Extinguishment of debt		(489,645	)		—			(489,645	)		—
Other income, net		(65,384	)		105,523			(285,662	)		99,369
(Loss) income before income tax expense		(848,336	)		554,615			(3,768,013	)		1,770,037
Income tax (benefit) expense:
Current		(407,828	)		324,915			(1,629,201	)		865,160
Deferred		133,138			(118,351	)		403,890			(187,630	)
Total income tax (benefit) expense		(274,690	)		206,564			(1,225,311	)		677,530
Net (loss) income		(573,646	)		348,051			(2,542,702	)		1,092,507
(Net loss) income per common share (basic and diluted)	$	(0.11	)	$	0.07		$	(0.48	)	$	0.21
Weighted average shares outstanding (basic and diluted)		5,278,780			5,278,780			5,278,780			5,278,780

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

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

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(Unaudited)~~IMPRESO, INC. AND SUBSIDIARIES

	Nine Months Ended
	May 31,			May 31,
	2005			2004
Cash Flows From Operating Activities
Net (loss) income	$	(2,542,702	)	$	1,092,507
Adjustments to reconcile net (loss) income to net cash used in operating activities-
Depreciation and amortization		1,116,483			1,072,416
(Decrease) increase in Provision for Losses of Receivables		(64,917	)		—
Decrease in Provision for Losses of Inventory		99,906			—
Extinguishment of Debt		489,645			—
Gain on sale of property, plant and equipment		(142,284	)		—
Deferred income tax (benefit) expense		403,890			(187,630	)
Decrease in trade accounts recivable		4,997,994			169,724
Increase in refundable income taxes		(1,746,880	)		—
Decrease in inventories		1,586,139			7,462,330
Increase in prepaid expenses and other		(467,656	)		(625,301	)
(Increase) decrease in non current assets		6,424			(780,110	)
(Decrease) in accounts payable		(3,374,896	)		(923,936	)
Increase (Decrease) in accrued liabilities		(536,836	)		1,283,221
Net cash (used) provided by operating activities		(175,690	)		8,563,221
Cash Flows From Investing Activities:
Additions to property, plant, and equipment		(927,195	)		(1,258,945	)
Proceeds from sale of property, plant & equipment		40,145			2,892,888
Net Cash (used in) provided by investing activities		(887,050	)		1,633,943
Cash Flows From Financing Activities:
Net borrowings (payments) on line of credit		1,395,025			(8,816,523	)
Payments on prepetition debt		(7,899	)		(6,103	)
Net additions (payments) on postpetition debt, net		130,807			(1,163,705	)
Net cash provided by (used in) financing activities		1,517,933			(9,986,331	)
Net increase in cash and cash equivalents		455,193			210,833
Cash and cash equivalents, beginning of period		173,313			95,129
Cash and cash equivalents, end of period		628,506		$	305,962

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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


	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

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

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

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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~~, and Alexa Springs, Inc~~. ~~a natural spring water bottler.~~ Currently, TST has one wholly owned subsidiary, TST/Impreso of California, Inc., ~~which~~ which was formed to support the activities of the paper converting segment of the Company’s business.

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 ~~May~~November 3130, 2005, and its results of operations for the three ~~and nine~~ months ended ~~May~~November 3130, 2005 and ~~May~~November 3130, 2004. 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 ~~May~~November 3130, 2005, may not be indicative of results for the full fiscal year. The following unaudited Interim Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations, ~~promulgated~~although bythe company believes that the ~~Securities~~disclosures ~~and Exchange~~made ~~Commission~~are (adequate to make the information ~~“SEC”)~~not misleading.

~~The~~It is suggested that these unaudited Interim Condensed Consolidated Financial Statements ~~should~~ be read in ~~conjunction~~ conjunction with the audited Consolidated Financial Statements and ~~accompanying~~ notes thereto of the Company and ~~its~~ its subsidiaries, included in the Company’s Form 10-K, (the “Form 10-K”), for the year ended August 31, ~~2004~~ 2005 (“Fiscal ~~2004~~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.

NEW ACCOUNTING PRONOUNCEMENTS

In ~~December~~January ~~2002~~2003, the FASB issued ~~SFAS~~Interpretation ~~No. 148~~46 (“~~Accounting~~FIN ~~for~~46”), ~~Stock-Based~~“Consolidation ~~Compensation~~of –Variable Interest ~~Transition~~Entities,” ~~and~~an ~~Disclosure~~Interpretation of ARB 51, anwhich ~~amendment~~expands toupon ~~SFAS~~and ~~No. 123”.~~strengthens ~~This~~existing ~~statement~~accounting guidance ~~provides~~concerning ~~alternative~~when a company should include in its financial statements the assets, ~~methods~~liabilities and activities of ~~transition~~another ~~for~~entity. ~~companies~~A ~~that~~variable ~~elect~~interest toentity ~~voluntarily~~(“VIE”) ~~change~~does tonot ~~the~~share economic ~~fair~~risk ~~value~~and ~~based~~reward ~~method~~through typical equity ownership arrangements; instead, contractual or ofother ~~accounting~~relationships ~~for~~distribute ~~stock-based~~economic ~~employee~~risks ~~compensation~~and rewards among equity holders and other parties. Once Inan ~~addition~~entity is determined to be a VIE, ~~this~~the ~~statement~~party ~~amends~~with the controlling financial interest, the ~~disclosure~~primary ~~requirements~~beneficiary, ofis ~~SFAS~~required Noto consolidate it. ~~123~~ toFIN ~~require~~46 ~~prominent~~also requires disclosures about VIEs that the Company is not required to consolidate but in ~~both~~which ~~annual~~it ~~and~~has ~~interim~~a significant variable ~~financial~~interest. ~~statements~~This ~~about~~interpretation was effective at the ~~method~~end of ~~accounting~~the ~~for~~first ~~stock-based~~reporting ~~employee~~period ~~compensation~~that ~~and the~~ended ~~effect~~after March 15, 2004. The adoption of this statement in the ~~method~~quarter ~~used~~ended onMay 31, ~~reported~~2004, ~~results.~~did not have a material

In January 2003, the FASB issued Interpretation 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” an Interpretation of ARB 51, which expands upon and strengthens existing accounting guidance concerning when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity (“VIE”) does not share economic risk and reward through typical equity ownership arrangements; instead, contractual or other relationships distribute economic risks and rewards among equity holders and other parties. Once an entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate it. FIN 46 also requires

~~disclosures about VIEs that the Company is not required to consolidate but in which it has a significant variable interest. The adoption of this statement did not have a material~~ impact on the Company’s consolidated financial statement.

In ~~April~~December ~~2003~~2004, the Financial Accounting Standards Board (“FASB”) issued SFAS ~~149~~No. 123R, “~~Amendment~~Share-Based ofPayment” ~~Statement~~(“SFAS ~~133~~123R”). onUnder ~~Derivative~~this ~~Instruments~~new ~~and Hedging~~standard, ~~Activities.”~~companies ~~SFAS~~will ~~149~~no ~~amends~~longer ~~and~~be ~~clarifies~~able ~~financial~~to account ~~accounting and reporting~~ for ~~derivative~~ ~~instruments,~~share-based ~~including~~compensation ~~certain~~transactions ~~derivative~~using ~~instruments~~the ~~embedded~~intrinsic method in ~~other~~accordance ~~contracts~~with APB ~~(collectively~~25. ~~referred~~Instead, tocompanies aswill ~~derivatives)~~be ~~and~~required to account for ~~hedging~~such ~~activities~~transactions ~~under~~using ~~SFAS~~a ~~133,~~fair-value ~~“Accounting~~based ~~for~~method ~~Derivative Instruments~~ and ~~Hedging~~to ~~Activities.”~~recognize ~~SFAS~~the ~~149~~expense isover ~~effective~~the ~~for~~service ~~contracts~~period. ~~entered into~~The orCompany ~~modified~~has ~~after~~adopted ~~June 30,~~SFAS ~~2003,~~123R ~~and~~ for its ~~hedging~~fiscal ~~relationships~~year ~~designated~~ended ~~after June~~August 3031, ~~2003~~2006. ~~The~~ ~~adoption~~Adopting of this ~~statement~~standard ~~did~~does not ~~have~~result ~~any~~in ~~impact~~a material impact on the ~~Company’s~~ consolidated financial position, or results of operations or cash flows of the Company.

In ~~May~~November ~~2003~~2004, the FASB issued SFAS ~~150~~No. 151, “~~Accounting~~Inventory ~~for~~Costs” ~~Certain~~(“SFAS ~~Financial Instruments with Characteristics of both Liabilities and Equity.~~151”), ~~This statement establishes standards for how~~ an ~~issuer~~ ~~classifies~~amendment ~~and~~of ~~measures in its balance sheet certain financial instruments with~~ARB ~~characteristics~~No. 43, ~~of both liabilities and equity~~Chapter 4. InSFAS ~~accordance~~151 ~~with~~clarifies the ~~standard,~~accounting ~~a financial instrument that embodies an obligation~~ for ~~the~~abnormal ~~issuer~~amounts isof ~~required~~idle ~~to be classified as a liability~~facility ~~(or~~expense, anfreight, ~~asset~~handling incosts ~~some~~and ~~circumstances)~~wasted material. SFAS ~~150~~151 is effective for ~~financial~~inventory ~~statements entered into~~costs orincurred ~~modified~~during ~~after~~our ~~May 31,~~fiscal ~~2003,~~year ~~and~~ending ~~otherwise is effective at the beginning of the first interim period beginning after June~~August 1531, ~~2003~~2006. The adoption of ~~this~~SFAS ~~statement~~151 did not have ~~any~~a material ~~impact~~effect on the Company’s consolidated financial position, ~~and~~ results of operations or cash flows.

In ~~November~~December 2004, the FASB issued SFAS No. 153, ~~151~~Exchanges ~~“Inventory~~of ~~Costs,~~Non-monetary Assets—an ~~Amendment~~amendment of APB ~~ARB~~Opinion No.~~43 Chapter~~ 4” 29 (“FAS ~~151~~153”). ~~FAS~~SFAS ~~151~~153 ~~requires~~is ~~that~~effective ~~items~~for ~~such~~nonmonetary asexchanges ~~idle~~occurring ~~facility~~in ~~expense~~fiscal periods beginning after June 15, ~~excessive~~2005. ~~spoilage~~The guidance in APB Opinion No. 29, ~~double~~Accounting for ~~freight~~Non-monetary Transactions (“APB 29”) , ~~and~~is ~~rehandling~~based beon ~~recognized~~the asprinciple ~~current~~that exchanges of non-~~period~~monetary assets ~~charges~~should ~~rather~~be ~~than~~measured ~~being~~based ~~included~~on ~~in inventory~~the ~~regardless~~fair value of ~~whether~~ the ~~costs~~assets ~~meet~~exchanged. However, the ~~criterion~~guidance in ofAPB ~~abnormal~~29 asincluded ~~defined~~certain inexceptions ~~ARB~~to 43that principle. FAS ~~151~~ is153 ~~applicable~~amends APB 29 to eliminate the exception for ~~inventory~~non-monetary ~~costs~~exchanges ~~incurred~~of ~~during~~similar ~~fiscal~~productive ~~years~~assets ~~beginning~~and ~~after~~replaces ~~June 15,~~it ~~2005,~~with a general ~~The~~exception ~~Company~~for ~~will~~exchanges ~~adopt~~of ~~this~~non-monetary ~~standard~~assets ~~beginning~~that do not have commercial substance. A non-monetary exchange has commercial substance if the ~~first~~future ~~quarter~~cash flows of ~~fiscal~~the ~~year~~entity ~~2006~~are ~~and~~expected to ~~does~~change ~~not believe~~significantly as a result of the ~~adoption~~exchange. ~~will~~The ~~have~~adoption aof ~~material~~FAS ~~impact~~153 onin ~~its~~the ~~financial~~year ~~statements~~ended August 31, as2005, ~~such~~did ~~costs~~not have ~~historically~~ ~~been~~a ~~expensed~~material asimpact ~~incurred~~on the Company’s consolidated financial statements.

InOn ~~December~~March ~~2004~~29, 2005, the ~~Financial~~Securities ~~Account~~and ~~Standards~~Exchange ~~Board~~Commission (“~~FASB~~SEC”) issued ~~SFAS~~Staff Accounting Bulletin No,. 107 ~~153,~~(SAB ~~“Exchanges~~107) ~~of Non-monetary~~regarding ~~Assets~~the —Staff’s aninterpretation ~~amendment~~ of ~~APB~~SFAS ~~Opinion No~~123(R). ~~29”~~ ~~which~~This ~~addresses~~interpretation expresses the ~~measurement~~views of the Staff regarding the interaction between SFAS 123(R) and certain SEC ~~exchanges~~rules and regulations and provides the Staff’s views regarding the valuation of ~~non~~share-~~monetary~~based ~~assets~~payment arrangements ~~and~~by ~~eliminates~~public ~~the~~companies. ~~exception~~In ~~from~~particular, ~~fair~~this ~~value~~SAB ~~accounting~~provides ~~for~~guidance related to share-based payment transactions with non-~~monetary~~employees, ~~exchanges~~the oftransition ~~similar~~from ~~productive~~nonpublic ~~assets~~to ~~and~~public ~~replaces~~entity itstatus, valuation ~~with~~methods, anthe ~~exception~~accounting for ~~exchanges that~~certain doredeemable ~~not~~financial ~~have~~instruments ~~commercial~~issued ~~substance.~~under share-based ~~SFAS~~payment ~~No. 153~~arrangements, ~~specifies~~the ~~that~~classification aof compensation expense, non-~~monetary~~GAAP ~~exchange has~~financial ~~commercial~~measures, ~~substance~~first-time ifadoption ~~the~~of ~~future~~SFAS ~~cash~~123(R) ~~flows~~in of an ~~entity~~interim ~~are~~period, ~~expected~~capitalization toof ~~change~~compensation cost ~~significantly~~related ~~as a~~to ~~result~~share-based ofpayment arrangements, the ~~exchange.~~accounting ~~This~~for ~~statement~~income istax ~~effective~~effects ~~for~~of share-based ~~the~~payment ~~Company~~arrangements ~~beginning~~upon adoption of SFAS 123(R), the ~~first~~modification ~~quarter~~ of ~~fiscal~~employee ~~year~~share options ~~2006~~prior to adoption of SFAS 123(R) and isdisclosures ~~not~~in ~~expected~~Management’s toDiscussion ~~have~~and aAnalysis subsequent ~~significant~~to ~~impact~~adoption onof ~~the~~SFAS 123(R). The Company’s ~~financial~~has adopted SAB 107 in connection with its ~~statements~~adoption of SFAS 123(R).

In December 2004, FASB issued SFAS No., 123 (Revised 2004) “Share-Based Payment: an Amendment of FASB Statements No. 123 and 95” (“FAS l23R”). FAS l23R sets accounting requirements for “share-based” compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation. FAS l23R is applicable for the first fiscal year beginning after June 15, 2005. This statement is effective for the Company beginning the first quarter of fiscal year 2006 and is not expected to have a significant impact on its financial statements.

RECLASSIFICATIONS

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

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, 2005			August 31, 2004
	November 30, 2005			August 31, 2005
Finished goods	$	119,~~324~~794,~~563~~023		$	119,~~920~~408,~~405~~114
Raw materials		85,~~784~~132,~~857~~712			96,~~866~~327,~~736~~885
Supplies		1,~~137~~078,~~317~~987			1,~~047~~385,~~748~~293
Work-in-process		~~119~~115,~~409~~093			~~117~~95,~~396~~233
Allowance for obsolete inventory		(~~408~~462,~~633~~342	)		(~~308~~462,~~727~~604	)
Total	$	2015,~~957~~658,~~513~~473		$	2216,~~643~~753,~~558~~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, wethe Company exited and no longer utilized ~~our~~company owned buildings located in in Kearneysville, West Virginia ~~and Greencastle, Pennsylvania~~.

~~For~~In the three ~~and~~months ~~nine month periods~~ ended ~~May~~November 3130, ~~2005~~2004, the Company ceased depreciating the Kearneysville buildings and building improvements and has reclassified the net book value of the land, building and building improvements in the amount of $2.1.3 million to assets held for sale. ~~In July 2005, the~~ ~~Company executed contracts for sale, containing customary and usual conditions, on both locations. The contracts are scheduled for closing in late August and early September 2005.~~

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

7. ~~EXTINGUISHMENT~~LONG-TERM DEBT AND LINE OF ~~DEBT~~CREDIT:

TST was a defendant in a suit filed in Fiscal 2003 for the collection of sums due under two promissory notes. The liability of $577,145 was included on the Company’s balance sheet. TST asserted various defenses and the parties settled. TST has completed all payments associated with the settlement and recorded extinguishment of debt in the amount of $489,645.


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

8. 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

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. 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% 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, (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.		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.		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.		218,000			220,169

Total		14,420,324			15,807,427

Less Current Maturities		(6,854,343	)		(8,033,066	)

Long-Term Debt	$	7,565,981		$	7,774,361

~~The~~Prepetition ~~following~~amount islisted aabove ~~summary~~represents ofthe ~~long-term~~renegotiated ~~debt~~amounts and ~~line~~terms under the 1993 plan of ~~credit:~~reorganization.

	May 31,		August 31,
	2005		2004
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 the applicable prime rate margin (5.75% and 4.25%, respectively, as of May 31, 2005 and August 31, 2004).	$	8,246,504	$	6,851,479
Note payable to a commercial financial corporation, secured by real property and equipment, payable in monthly installments of $4,457 (including interest at 8.50%), maturing November 2008.		193,886		222,039
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.		533,186		599,536
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.		155,463		175,978
Notes payable to various commercial financial corporations, secured by equipment, interest rates ranging from 0 % to 10.5 %, maturing at various dates from June 2005 through July 2009.		113,754		140,069
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 $21,407 (including interest at 8%), maturing March 2011.		1,866,326		1,944,381
Acquisition note payable, unsecured, payable in quarterly installments of $15,000 (including interest at 8%), maturing April 2006. (See Footnote 7)		-0-		225,000
Acquisition note payable, secured by equipment, payable in monthly installments of $16,024, no interest, matured May 2003. (See Footnote 7)		-0-		352,145
Note payable to a commercial financial corporation, secured by real property payable in monthly installments of $12,377.85, including interest at prime plus 1.125% with a cap of 7.5% (6.375% at May 31, 2005) maturing September 2009.		4,369,382		4,460,102
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, (5.51% at May 31, 2005 and 4.5% at August 31, 2004), maturing February 2009.		821,429		982,143
Acquisition notes payable, unsecured, payable in monthly installments of $16,666, maturing February 2007.		342,422		476,905
Financing lease payable to a commercial financial corporation, secured by equipment, payable in monthly installments of $28,320, including interest at 8.51%, maturing October 2011.		1,802,902		-0-
Prepetition-

In June 2005, TST amended its revolving line of credit to extend the maturity date to November 2007. TST’s amended revolving credit line is limited to the lesser of $15 million or a percentage of eligible trade accounts receivable and inventories, as defined. The remaining availability under the revolving credit line was $3.7 million as of November 30, 2005.

	May 31,			August 31,
	2005			2004
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.		221,174			229,073
Total		18,666,428			16,658,850
Less Current Maturities		(9,485,739	)		(8,266,933	)
Long-Term Debt	$	9,180,689		$	8,391,917

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.

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

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.

8. SUPPLEMENTAL CASH FLOW INFORMATION

Three Months ended	~~May~~November 3130, 2005		~~May~~November 3130, 2004
Cash paid during the period for:
Interest		~~318~~305,~~030~~372		~~234~~238,~~961~~930
Income taxes		502,~~724~~866		~~500~~93,~~000~~801

Nine Months ended	May 31, 2005		May 31, 2004
Cash paid during the period for:
Interest		885,386		852,211
Income taxes		120,724		1,010,639

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.

~~During~~9. ~~the~~STOCK ~~three~~OPTIONS ~~and nine month periods ended May 31, 2005, the Company reclassified~~ $2,141,289 of property, plant and equipment to assets held for sale, and received payment applied directly to the line of credit of $1,625,633 relating to the financing of various water bottling equipment.

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

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

The following summarizes information about stock options outstanding and exercisable as of November 30, 2005.

Options Outstanding


						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

9Effective September 1, 2005, the company adopted the provisions of Statement of Financial Accounting Standard No. 123R, ~~STOCK~~Share-Based ~~OPTIONS~~Payment, (“SFAS123R”) for its share-based compensation plans. The Company previously accounted for these plans under the recognition and measurement principals of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”) and related interpretations and disclosure requirements established by Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation, (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock Based Compensation—Transition and Disclosure.

~~The~~Under ~~Company~~APB ~~accounts~~25, ~~for~~no ~~the~~compensation ~~Incentive~~expense ~~Stock~~was ~~Option~~recorded ~~Plan~~in ~~under~~earnings for the ~~recognition~~Company’s ~~and~~stock ~~measurement~~based ~~principles~~options ofand ~~APB~~awards ~~Opinion~~granted ~~No. 25,~~under ~~“Accounting~~the ~~for~~incentive ~~Stock~~stock ~~Issued~~option toplan ~~Employees,~~(“SOP” ~~and related Interpretations~~). NoThe ~~stock-based~~pro ~~compensation~~forma ~~costs~~effects ~~are reflected in~~ on net income, asand ~~all~~earnings ~~options granted~~per ~~under~~share ~~those~~for ~~plans~~SOP ~~had~~awards anwere ~~exercise~~instead ~~price~~disclosed ~~equal~~in toa ~~the~~footnote ~~market~~to ~~value of~~ the ~~underlying common~~ ~~stock~~financial ~~on the date of grant~~statements. ~~The~~Under ~~following~~SFAS ~~table~~123R, ~~illustrates~~all ~~the~~share-based ~~effect~~compensation onis ~~net~~measured ~~income~~at ~~and earnings per share if~~ the ~~Company~~grant ~~had~~date, based ~~applied~~on the fair value ~~recognition~~of ~~provisions~~the ofaward, ~~FASB~~and ~~Statement~~is ~~No. 123,~~recognized ~~“Accounting~~as ~~for~~an ~~Stock-Based~~expense ~~Compensation,”~~in toearnings ~~stock-based~~over ~~employee~~the requisite ~~compensation~~service period.

Three Months Ended	May 31,			May 31,
Pro forma impact of fair value method	2005			2004
Reported net (loss) income	$	(573,646	)	$	348,051
Less: fair value impact of employee stock options		—			1,200
Pro Forma net (loss) income	$	(573,646	)	$	346,851
Earnings per common share
Basic-as reported	$	(0.11	)	$	0.07
Diluted-as reported	$	(0.11	)	$	0.07
Basic-pro forma	$	(0.11	)	$	0.07
Diluted-pro forma	$	(0.11	)	$	0.07
Weighted average Black-Scholes fair value assumptions
Risk free interest rate		3.73	%		3.27	%
Expected life	5 years			5 years
Expected volatility		58	%		57	%
Expected dividend yield		-0-			-0-

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.

Nine Months Ended	May 31,			May 31,
Pro forma impact of fair value method	2005			2004
Reported net (loss) income	$	(2,592,702	)	$	1,092,507
Less: fair value impact of employee stock options		1,500			3,600
Pro Forma net (loss) income	$	(544,202	)	$	1,088,907
Earnings per common share
Basic-as reported	$	(0.48	)	$	0.21
Diluted-as reported	$	(0.48	)	$	0.21
Basic-pro forma	$	(0.48	)	$	0.21
Diluted-pro forma	$	(0.48	)	$	0.21
Weighted average Black-Scholes fair value assumptions
Risk free interest rate		3.73	%		3.27	%
Expected life	5 years			5 years
Expected volatility		58	%		57	%
Expected dividend yield		-0-			-0-

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 ~~to TST’s demand~~ by generally denying TST’s claims and asserting a counterclaim seeking to ~~recover~~ recover disputed accounts receivable and damages related to TST’s alleged interference with the vendor’s relationship with its lender. In June 2005, the United States District Court for the Northern District of Texas — Dallas Division ruled that it did not have jurisdiction over the matter. TST filed suit in state court in Texas and the Defendant filed suit in state court in California. The ~~Defendant~~Trial ~~also~~is ~~filed~~set for ~~arbitration in California~~July 2006. ~~TST is responding to the~~ ~~California suit and arbitration by asserting the parties waived all rights to arbitrate by agreement and the appropriate venue is in Texas.~~

~~TST~~On November 5, 2003, the Company discovered the Company’s payroll administrator was afraudulently diverting ~~defendant~~Company infunds into her personal bank accounts. In November 2004, the Company and the insurer at the time the loss was discovered executed a ~~suit~~partial ~~filed~~settlement inwithout ~~Fiscal~~waiving ~~2003~~each party’s ~~for~~rights to proceed to suit or defend on the ~~collection~~balance of ~~sums~~the ~~due~~Company’s ~~under~~losses. ~~two~~Management ~~promissory~~believes ~~notes.~~recent ~~The~~legal ~~liability~~developments could be persuasive in litigating different interpretations of defined ~~$577~~terms within the policy,~~145~~ ~~was~~and ~~included~~therefore onrecovering the balance of up to $500,000 of the Company’s ~~balance~~claim ~~sheet~~as filed with the Insurer. ~~TST asserted~~The ~~various~~fraudulently ~~defenses~~diverted ~~and~~funds were recorded in the Registrant’s ~~parties~~consolidated ~~settled.~~financial ~~TST~~statements ~~has~~for ~~completed~~fiscal ~~all~~years ~~payments~~ended ~~associated~~August 31, ~~with~~2001, 2002 and 2003, as salary expense. Partial reimbursement from the ~~settlement~~insurance company and the embezzler is recorded ~~extinguishment~~as ofa ~~debt~~separate inline item under operating income, embezzlement recovery, for the ~~amount~~three months ofended ~~$489~~November 30,~~645~~ 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.

OnIn ~~November~~April 52004, ~~2003,~~TST ~~the~~filed ~~Company~~a ~~discovered~~lawsuit in the ~~Company’s~~68th ~~payroll~~judicial ~~administrator~~district ~~was~~Dallas ~~fraudulently diverting~~County ~~Company~~against ~~funds into her personal bank accounts. The investigation revealed~~ a ~~loss of~~former ~~approximately~~outside ~~$627~~representative,~~000~~ ~~over~~alleging abreach ~~period~~of ~~starting~~fiduciary induty, ~~September 2000~~tortuous ~~until~~interference ~~October 2003.~~with Inexisting ~~November~~and ~~2004,~~prospective ~~the~~business ~~Company~~relations, and ~~the~~civil ~~insurer~~conspiracy. atThe ~~the~~lawsuit ~~time~~seeks ~~the loss was discovered executed a partial settlement without waiving each party’s rights~~ to ~~proceed~~enforce ~~to suit or defend on~~ the ~~balance~~duties of ~~the Company’s~~ ~~losses.~~loyalty ~~Management~~owed ~~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~~ ofTST ~~the~~by ~~Company’s~~its ~~claim~~sales ~~as filed with the Insurer~~agent. The ~~fraudulently~~defendant ~~diverted~~filed ~~funds~~a ~~were recorded~~counter inclaim ~~the~~alleging ~~Registrant’s consolidated financial statements for fiscal years ended August 31,~~business ~~2001,~~disparagement ~~2002~~ and ~~2003,~~tortious asinterference ~~salary~~with ~~expense.~~existing ~~Partial reimbursement from the insurance company~~ and ~~the embezzler~~prospective isbusiness ~~recorded~~relations. asTrial ~~a separate line item under other income, embezzlement recovery, in the~~is ~~Form 10-Q,~~set for ~~the three month and nine month periods ended May~~April ~~31, 2005~~2006. ~~In June 2005, we engaged~~ ~~counsel to pursue our claims against potentially liable parties for losses incurred.~~

InOn ~~April~~July 9, 2004, TST ~~filed~~received a ~~lawsuit~~preference inclaim ~~the~~demand ~~68th~~from ~~judicial~~the ~~district~~Trustee of ~~Dallas~~the ~~County against~~estate ~~two~~of ~~former~~a ~~outside~~former ~~sales~~customer ~~representatives~~in ~~and~~the aamount ~~competitor, alleging breach~~ of ~~fiduciary~~$1.2 million. ~~duty,~~On ~~tortious interference with existing and prospective business relations~~June 2, ~~and civil conspiracy. The lawsuit seeks to enforce the duties of loyalty owed to TST by its sales agents~~2005, ~~and also protect~~ TST ~~from~~was ~~any~~served ~~unfair~~with ~~business~~the ~~practices of TST’s~~preference ~~competitors~~lawsuit. The ~~competitor~~suit ~~filed~~is abased ~~counter~~upon ~~claim~~a ~~alleging~~gross ~~business~~preference ~~disparagement~~demand and ~~tortious interference with existing and prospective business relations. The parties to~~ the ~~litigation~~Company ~~are~~believes ~~actively conducting discovery.~~subsequent ~~One outside sales representative was determined not~~ to ~~have sufficient contacts with the~~a ~~state~~full ofpreference ~~Texas~~analysis and ~~therefore~~the ~~was~~Company’s ~~dismissed~~utilization ~~from~~of ~~the~~various ~~action.~~defenses, ~~Discovery~~any toresulting ~~date~~liability ~~has~~should ~~revealed insufficient~~be ~~grounds~~lowered to ~~pursue~~ ~~the~~a ~~claim~~materially ~~against~~reduced ~~the competitor and the claim against the competitor was also dismissed~~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.

~~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~~11.~~2 million.~~ OnSUBSEQUENT ~~June 2, 2005, TST was served with the preference~~EVENTS 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 liability should be lowered to a materially reduced amount.

~~The~~In ~~Company’s Corporate Income Tax Returns for the fiscal years ending August~~January 312006, ~~2001,~~the ~~2002,~~Company ~~and 2003,~~leased ~~are~~a ~~currently~~portion ~~under~~of ~~examination~~its byChambersburg ~~the~~facility ~~Internal~~to ~~Revenue~~a ~~Service~~subtenant ~~(“IRS”).~~for ~~The IRS has~~a ~~proposed~~period ~~adjustments~~of toone ~~the fiscal years under examination~~year, ~~and~~at ~~the~~an ~~matter~~annual ~~has~~rental ~~been~~rate ~~sent to the Appeals Division~~ of ~~the IRS~~$206,000. The ~~Company~~tenant ~~does~~has ~~not~~indicated ~~believe~~an ~~that~~interest ~~the proposed adjustments will be~~in ~~upheld~~expanding bytheir ~~the~~lease ~~Appeals Division~~space.

~~In November~~Item ~~2004,~~2. ~~TST~~Management’s ~~filed~~Discussion ~~a lawsuit in the Dallas County Judicial District against a company that operated as our customer~~ and asAnalysis ~~a vendor, alleging breach~~ of ~~contract~~Financial ~~seeking~~Condition ~~to collect an outstanding accounts receivable~~ and ~~against~~Results ~~an employee~~ of ~~the company alleging libel and slander.~~Operations ~~The parties settled in mediation and the suit was dismissed with prejudice.~~

~~From~~CRITICAL ~~March 22,~~ACCOUNTING ~~2005 to May 16, 2005, a shareholder made four demands requesting inspection of a~~POLICIES large volume and broad range of documents pursuant to Section 220 of Delaware General Corporation Law. Management provided some documents in response to the request, advised that many others were available on EDGAR, requested the shareholder fund the personnel necessary to retrieve the large volume items, and directed the shareholder to his agent, who was a member of our Board of Directors from October 23, 2002 to April 22, 2004, and was the Financial Expert of the Audit Committee during his tenure. The shareholders agent voted in favor of all resolutions presented to the Board and Audit Committee .Management believes the request contains unrelated, overly broad and/or unduly burdensome requests. On June 30, 2005, the shareholder filed in the Court of Chancery of the state of Delaware requesting the documents. We will respond to the suit and allow the judge to determine the appropriate production.

~~Item~~The 2accounting policies described below are those the Company considers critical in preparing its consolidated financial statements. ~~Management~~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 ~~Discussion~~observation of trends in the industry, information provided by customers and ~~Analysis~~information ofavailable ~~Financial~~from ~~Condition~~other outside sources, as appropriate and available ~~Results~~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 ~~Operations~~significant accounting policies, the following may involve a higher degree of judgment or estimation than other accounting policies.

~~CRITICAL~~Accounts ~~ACCOUNTING~~Receivable ~~POLICIES~~(doubtful accounts) Reserves

The ~~accounting policies described below are those the~~ Company ~~considers~~provides ~~critical~~for inlosses ~~preparing~~on ~~its consolidated~~accounts ~~financial~~receivable ~~statements.~~based ~~These~~upon ~~policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By~~ their ~~nature~~current status, ~~these judgments are subject to an inherent degree of uncertainty. These judgments are based on~~ historical experience, ~~the~~and ~~Company~~management’s ~~observation~~evaluation of ~~trends~~existing ineconomic ~~the industry, information provided by customers and information available from other outside sources, as appropriate and available at the time the estimates are made~~conditions. ~~However,~~Significant aschanges ~~described below, these estimates could~~in ~~change~~customer ~~materially~~profitability ~~if different information~~ or ~~assumptions~~general ~~were~~economic ~~used.~~conditions ~~The Company believes that of its significant accounting policies, the following~~ may ~~involve~~have a ~~higher~~significant ~~degree~~effect ofon ~~judgment or~~the ~~estimation~~Company’s ~~than~~allowance ~~other~~for ~~accounting~~doubtful ~~policies~~accounts.

~~Accounts~~Revenue ~~Receivable (doubtful accounts) Reserves~~Recognition

~~The~~TST ~~Company~~records ~~accrues~~sales ~~for~~of ~~losses~~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 ~~accounts~~line ~~receivable~~authorizations atand our order acknowledgments include the ~~rate~~terms of ~~one~~the sale ~~half~~and ofare binding on the customer, persuasive evidence that a ~~percent~~transaction ~~per~~exits; Delivery has ~~month~~occurred, as risk of ~~sales~~loss ~~and~~of ~~adjusts~~the product has passed to the ~~accrual~~customer; ~~quarterly~~The ~~based~~purchase ~~upon~~orders, on line authorizations and order acknowledgments make our price to our customer’s ~~current~~fixed ~~status~~or determinable; Finally, ~~historical~~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. ~~Significant~~Consistent ~~changes~~monitoring inof the accounts receivable allows ~~customer~~us ~~profitability~~to ordetermine ~~general~~if ~~economic~~an ~~conditions~~account’s collection is becoming compromised. We reinvestigate delinquent customers to see if there may ~~have~~be a ~~significant~~slow ~~effect~~pay ontrend ~~the~~or economic condition affecting this customer. ~~Company’s~~Subsequent ~~allowance~~to ~~for~~this inquiry, we evaluate our doubtful account reserve and if the information ~~accounts~~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.

12Inventories

~~Table~~Inventories are valued at the lower of ~~Contents~~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.

~~Revenue Recognition~~12

TSTTable records sales of hard copy imaging and bottled water products when products are shipped to customers. Our revenue recognition policy complies with the required four revenue recognition criteria: Our customers’ purchase orders or on line authorizations and our order acknowledgments include the terms of the sale and are binding on the customer, persuasive evidence that a transaction exits; Delivery has occurred, as risk of loss of the product has passed to the customer; The purchase orders, on line authorizations and order acknowledgments make our price to our customer fixed or determinable; Finally, we assess the likelihood of collecting credit accounts prior to revenue recognition and are reasonably assured the sales are collectible due to our credit policies and collection methods. The Company reserves against doubtful accounts based upon historical experience and management’s evaluation of existing economic conditions. Consistent monitoring of the accounts receivable allows us to determine if an account’s collection is becoming compromised. We reinvestigate delinquent customers to see if there may be a slow pay trend or economic condition affecting this customer. Subsequent to reinvestigation, 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 vendors website. Commissions are generated when the linked traffic makes purchases. The revenue is recognized upon receipt. Contents

~~Inventories~~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

~~Inventories~~Typically, returns are ~~valued~~not atmaterial, ~~the~~therefore, ~~lower~~generally, ofwe ~~cost~~record orreductions ~~market,~~in ~~cost~~revenue ~~being~~when products ~~determined~~are onreturned ~~the~~and ~~first-in, first-out~~they ~~method.~~are ~~Reserves~~not accrued for ~~slow~~with ~~moving,~~sales ~~obsolete~~reduced ~~products,~~to orreflect ~~bad~~estimated ~~(damaged) products~~returns. On ~~are~~occasion ~~based on~~a ~~historical~~customer ~~experience,~~may ~~acquisition~~request ~~activities,~~authorization ~~and~~for ~~analysis~~an ofextraordinary ~~inventories~~return onof ~~hand~~product. ~~The Company~~Such ~~evaluates,~~request is analyzed and if ~~necessary~~material, ~~adjusts~~accrued ~~reserves~~for ~~quarterly~~with the estimated return applied as a reduction of sales.

~~Typically,~~Our ~~returns~~return ~~are~~policy ~~not~~is ~~material,~~to ~~therefore,~~accept ~~generally,~~product weback ~~record~~for ~~reductions~~full incredit ~~revenue~~if ~~when products~~the ~~are~~product ~~returned~~was ~~and~~shipped ~~they~~in ~~are~~error ~~not accrued~~ or for ~~with~~product ~~sales~~that ~~reduced~~fails to ~~reflect~~meet ~~estimated~~acceptable ~~returns~~quality standards. On ~~occasion~~Returns aof ~~customer~~this ~~may~~nature ~~request~~must comply with the following: return authorization is valid for an30 days ~~extraordinary~~only; ~~return~~claims must be submitted to customer service within one week of product. ~~Such~~being delivered; We will not accept collect shipments ~~request~~on isproduct ~~analyzed~~being returned; and ifsamples ~~material,~~of ~~accrued~~defective ~~for~~product ~~with~~must be sent to the ~~estimated~~Customer ~~return~~Service Returns ~~applied~~Coordinator asfor aevaluation ~~reduction~~ and disposition of ~~sales~~product.

~~Our~~We ~~return~~will ~~policy~~also isaccept tohard ~~accept~~copy imaging product back for ~~full~~ credit ifsubject ~~the~~to a restocking charge (20% on Impreso brand; 30% on IBM brand) for product that was, ~~shipped~~for example, ordered in error orby the ~~for~~customer ~~product~~and ~~that~~is ~~fails~~in tore-saleable ~~meet~~condition, ~~acceptable~~returned ~~quality~~within ~~standards.~~4 months ~~Returns~~ of ~~this~~original ~~nature~~purchase ~~must~~and ~~comply~~has not ~~with~~been discontinued from the ~~following:~~product ~~return~~line. ~~authorization~~Products iswith ~~valid~~a ~~for~~shorter ~~30 days~~shelf-life, ~~only;~~such ~~claims~~as ~~must~~carbonless paper beand ~~submitted~~thermal ~~to customer~~products ~~service~~must ~~within~~be ~~one~~returned ~~week~~within 3 months of ~~product~~original ~~being~~purchase. ~~delivered;~~Once Wea ~~will~~return ~~not~~has been ~~accept~~authorized ~~collect~~and ~~shipments on~~the product ~~being~~ returned; ~~and~~to ~~samples~~our ofwarehouse ~~defective~~or ~~product~~plant, ~~must~~the becustomer ~~sent~~is issued a credit, according to the ~~Customer~~type ~~Service~~of return, against their account. This credit is then booked to the ~~Returns~~returns ~~Coordinator~~and ~~for~~allowances ~~evaluation~~account and ~~disposition~~a ofreduction ~~product~~in revenue is taken.

~~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~~Rebates, ~~for~~Advertising ~~example~~Allowances, ~~ordered in error by the customer~~ and isIndependent inSales ~~re-saleable condition, returned within 4 months of original purchase and has not~~Commissions 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,~~The ~~Advertising~~Company ~~Allowances,~~accrues for rebates and ~~Independent~~advertising ~~Sales~~allowances ~~Commissions~~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.

~~The~~For ~~Company~~the ~~accrues~~three ~~for~~months ~~rebates~~ended ~~and~~November 30, ~~advertising~~2004 ~~allowances paid to certain customers;~~ and ~~commissions paid~~ toNovember 30, ~~independent sales representatives~~2005, ~~based~~we onrecorded ~~specific~~customer ~~contractual~~rebates ~~agreements. These~~in ~~accruals are calculated based upon~~ the ~~volume~~amount of ~~purchases~~$1.4 million ~~by customers~~ and ~~sales~~$994,000, byrespectively. ~~independent sales~~The ~~representatives,~~customer ~~which~~rebates are ~~adjusted~~recorded ~~monthly~~as ~~to reflect increases and decreases.~~a ~~Advertising~~decrease ~~allowances provided~~ to ~~our customers must be used for advertising of our products and services and can not be used for any other purposes~~sales.

13For the three months ended November 30, 2004 and November 30, 2005, we recorded advertising allowances in the amount of $331,000 and $240,000, respectively. The advertising allowances are recorded as an SG&A expense.

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

~~For~~In the three months ended ~~May~~November 3130, 2004 ~~and May 31~~, ~~2005,~~ we ~~recorded~~re-classed ~~customer~~independent ~~rebates~~sales incommissions ~~the amount~~from cost of ~~$1.3 million~~goods ~~and~~sold ~~$1.3~~to selling, ~~respectively. For the nine months ended May 31~~general, ~~2004~~ and ~~May 31, 2005,~~administrative weexpenses ~~recorded customer rebates~~ in the amount of $~~3.8 million and $3.6 million~~80, ~~respectively~~014. ~~The customer rebates are recorded as a decrease to sales.~~

~~For the three months ended May 31, 2004 and May 31, 2005, we recorded advertising allowances in the~~13 amount of $564,000 and $267,000, respectively. For the nine months ended May 31, 2004 and May 31, 2005, we recorded advertising allowances in the amount of $1.6 and $791,000, respectively. The advertising allowances are recorded as an SG&A expense.

ForTable the three months ended May 31, 2004 and May 31, 2005, we recorded independent sales commissions in the amount of $97,000 and $194,805, respectively. For the nine months ended May 31, 2004 and May 31, 2005, we recorded independent sales commissions in the amount of $277,000 and $325,000, respectively. The independent sales commissions are recorded as an SG&A expense. Contents

Contingent liabilities.

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

~~Results~~SEGMENT ~~of Operations for the Interim Periods Ended May 31, 2005 and May 31, 2004.~~ANALYSIS

AsSFAS No. 131, a“Disclosures ~~result~~about ofSegments ~~the decrease in volume~~ of ~~purchases~~an byEnterprise ~~key~~and ~~customers~~Related inInformation” ~~January 2005, representing~~establishes ~~sales~~standards offor ~~approximately~~reporting ~~29%,~~information orabout ~~$30 million~~operating ofsegments. ~~Fiscal~~Our ~~2004~~operations ~~revenue,~~are ~~the~~segregated ~~Company began a plan to~~into ~~downsize~~operating ~~its~~segments ~~operations~~according ~~and reduce costs~~ to ~~return~~product ~~to profitability~~category. ~~The~~Under ~~key~~this ~~elements~~standard, as of ~~the~~November 30, ~~plan~~2005, we ~~are~~had ~~better~~two ~~utilization~~reportable ofoperating ~~space~~segments: ~~created~~hardcopy byimaging ~~reduced~~products ~~operations;~~and ~~leasing~~natural ~~available~~spring ~~space;~~bottled ~~liquidating~~water ~~buildings~~products. ~~that~~We ~~are~~evaluate ~~vacant~~the asperformance ~~a result~~ of ~~east~~each ~~coast~~segment ~~consolidations;~~using ~~eliminating~~pre-tax income or ~~reducing~~loss ~~current~~from continuing ~~work~~operations. ~~force,~~The ~~payroll,~~table ~~and~~below ~~employee~~presents ~~benefits;~~information ~~reducing inventories by $5 to $7 million; raise finished goods pricing~~ as ~~necessary~~ to ~~recoup~~our ~~raw~~net ~~material~~sales, ~~price~~operating ~~increases;~~earnings and ~~replace lost sales~~total asassets ~~quickly~~for asall ~~possible~~reportable segments.

Net Sales—Net sales decreased from $25 million in the three months ended May 31, 2004 to $20 million in the three months ended May 31, 2005 (“Third Quarter 2005”), a decrease of $5 million or 22.2%. Net sales decreased from $78 million in the nine months ended May 31, 2004, to $58 million in the nine months ended May 31, 2005, a decrease of $20 million or 25%. Net sales decreased in the three and nine months period ended May 31, 2005, as compared to the corresponding periods of the prior year, as a result of the decrease in volume of purchases by key customers.


	Three Months Ended						Three Months Ended
	November 30, 2005						November 30, 2004
	AMOUNT			PERCENT			AMOUNT			PERCENT
NET SALES BY INDUSTRY SEGMENT
Hardcopy imaging products	$	17,557,481			98.4	%	$	19,976,634			100.00	%
Bottled water	$	283,212			1.6	%	$	0			0.00	%

Total	$	17,840,693			100.00	%	$	19,976,634			100.00	%

PRE TAX (LOSS) PROFIT FROM CONTINUING OPERATIONS
Hardcopy imaging products	$	(365,812	)		72.1	%	$	(1,153,165	)		100.00	%
Bottled water	$	(141,314	)		27.9	%	$	0			0.00	%

Total	$	(507,126	)		(100.00	)%	$	(1,153,165	)		100.00	%

Gross Profit-— Gross profit decreased from $3.5 million in the three months ended May 31, 2004, to $1 million in the Second Quarter 2005, a decrease of 72%. Gross profit decreased from $10.5 million in the nine months ended May 31, 2004, to $2.7 million in the nine months ended May 31, 2005, a decrease of 74.8%. Gross profit margin for Third Quarter 2005 decreased to 5% as compared to 13.8 % for the three month period ended May 31, 2004. Gross profit margin for the nine month period ended May 31, 2005, decreased to 4.5% as compared to 13.5% for the nine month period ended May 31, 2004. The decreases in gross profit and gross profit margin for the three and nine month periods ended May 31, 2005, and the decrease in volume of purchases by key customers.


	As Of November 30, 2005				As Of August 31, 2005
TOTAL ASSETS BY INDUSTRY SEGMENT
Hardcopy imaging products	$	37,405,489	93.4	%	$	39,043,670	93.4	%
Bottled water	$	2,658,471	6.6	%	$	2,749,748	6.6	%

Total	$	40,063,960	100.00	%	$	41,793,418	100.00	%

14Results of Operations for the Interim Periods Ended November 30, 2005 and November 30, 2004.

~~Table~~As a result of ~~Contents~~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

Selling, General, and Administrative Expenses—SG&A expenses decreased from $ 2.6 million in the three months ended May 31, 2004 to $2.2 in the Third Quarter 2005. SG&A expenses decreased from $7.8 million in the nine months ended May 31, 2004 to $6.7 million in the nine months ended May 31, 2005. This decrease was primarily the result of a reduction in workforce on January 14~~, 2005. SG&A~~ expenses as a percentage of net sales increased from 10.3 % in the three months ended May 31, 2004, to 11.2% in the Third Quarter 2005. SG&A expenses as a percentage of net sales increased from 10% in the nine months ended May 31, 2004, to 11.5 % in the nine months ended May 31, 2005. The increase in SG&A as a percentage of sales for three and nine month periods ended May 31, 2005, is due to the decrease in net sales.

InterestTable Expense—Interest expense increased from $244,000 in the three months ended May 31, 2004, to $ 323,000, or 32 %, in Third Quarter 2005. Interest expense increased from $876,000 in the nine months ended May 31, 2004, to $901,000, or 2.8 % in the nine months ended May 31, 2005. The increase of Interest Expense by 32 % in the Third Quarter 2005 and the increase by 2.8% in the nine months ended May 31, 2005, as compared to the corresponding periods of the prior year is due to the increase of borrowings under our line of credit and increases in the prime interest rate. Contents

~~Income~~increases ~~Taxes-—~~in ~~Income~~our ~~tax~~freight ~~expense~~costs. ~~decreased~~The ~~from~~increased $freight ~~207,000~~costs ~~for~~are ~~the~~attributable ~~three~~to ~~months~~increases ~~ended~~in ~~May 31,~~fuel ~~2004~~costs, tobut ain ~~tax~~addition, ~~benefit~~the offreight ~~$275,000~~industry inratio ~~Third~~of ~~Quarter~~available ~~2005.~~trucks ~~Income~~to ~~tax~~requested ~~expense~~routes ~~decreased~~fell ~~from~~to ~~$678~~a historical low. The trend,~~000~~ ~~for~~which ~~the~~began ~~nine~~at ~~months~~the ~~ended~~end ~~May 31,~~of Fiscal 2004, tocontinued athrough ~~tax~~our ~~benefit~~first quarter of ~~$ 1.2 million in~~ the ~~nine months~~year ~~ended~~ending ~~May~~August 31, ~~2005~~2006.~~The~~ ~~decrease~~Revised infreight ~~income~~policies ~~tax~~were ~~expense~~implemented ~~for~~to ~~Third~~address this ~~Quarter~~expense; ~~2005,~~however aswe ~~compared~~believe to that the ~~corresponding~~freight ~~period~~cost ofincreases ~~the~~may ~~prior~~continue ~~year~~to ishave ~~due~~a tomaterial adverse ~~lower~~effect ~~net~~on ~~sales~~our ~~without~~financial aposition ~~corresponding reduction~~and inresults ~~overhead~~of ~~which~~operations ~~resulted~~ in ~~net~~the ~~loss~~year ofending ~~income~~August 31, 2006 (“Fiscal 2006”).

OnNet ~~December 1,~~Sales — ~~2004, TST and IBM terminated the Trademark Licensee Agreement.~~ Net sales ~~and~~decreased ~~revenue attributable~~from to$20 million ~~IBM~~in ~~branded~~the ~~products~~three ~~will~~months ~~gradually~~ended ~~decline~~November 30, ~~until~~2004 ~~the agreement is concluded in~~to ~~August~~$18 ~~2005.~~million ~~Substantially~~in ~~all of~~ the ~~products~~three wemonths ~~sell~~ended ~~under~~November 30, ~~the~~2005 ~~IBM~~(“First ~~brand~~Quarter ~~are~~2006”), ~~also~~a ~~sold~~decrease ~~under~~of ~~the~~$2.1 ~~Impreso~~million ~~brand~~or 10.7%. WeNet ~~have~~sales ~~initiated~~decreased ain ~~condensed~~the ~~marketing~~three ~~program~~month toperiod ~~convert~~ended ~~our~~November 30, ~~customers~~2005, ~~who were~~as ~~purchasing~~compared ~~our IBM branded products~~ to ~~our~~the ~~proprietary~~corresponding ~~brand,~~period ~~Impreso. Therefore, we believe that any quantity~~ of ~~lost~~the orprior ~~lower margin sales should not materially impact our liquidity~~year, ~~capital resources~~as ~~and~~a ~~results~~result of ~~operations~~the atdecrease ~~the~~in ~~time~~volume of purchases ~~termination~~by key customers.

~~The~~Gross Profit ~~cessation~~— ofGross ~~sales~~profit ofincreased ~~continuous~~from ~~business~~$980,000 ~~forms~~in tothe athree ~~significant~~months ~~customer~~ended ~~has~~November 30, ~~had a material~~2004, ~~impact~~to on$1.6 million ~~our~~in ~~net~~the ~~sales~~First ~~and~~Quarter ~~revenues~~2006, ~~and~~an ~~adversely~~increase ~~affected~~of ~~our~~63.6%. ~~liquidity,~~Gross ~~capital~~profit ~~resources~~margin ~~and~~for First ~~results~~Quarter of2006 ~~operations.~~increased Weto ~~are~~9% ~~currently~~as ~~working~~compared to ~~replace~~4.9 ~~this~~% ~~business~~for ~~with~~the ~~other~~three ~~volume purchasers~~month ofperiod ~~this~~ended ~~product~~November 30, 2004. WeThe ~~have~~increase ~~also~~in ~~been~~gross ~~successful~~profit inand ~~introducing~~gross ~~other~~profit ~~product~~margin ~~lines~~for tothe ~~this~~three month period ended ~~customer~~November 30, ~~and~~2005, ~~will~~resulted ~~continue~~from tothe ~~try~~implementation of the cost reduction savings plan and ~~recapture~~a finished goods price increase in the ~~sale~~third ofquarter ~~continuous~~Fiscal ~~business~~2005, ~~forms~~partially tooffset ~~this~~by higher fuel and ~~company~~freight costs.

~~The~~Selling, General, ~~decline~~and inAdministrative ~~the~~Expenses ~~market~~— ofSG&A ~~continuous~~expenses ~~feed~~decreased ~~business~~from ~~forms~~$2.3 million ~~has~~in ~~begun~~the three tomonths ~~materially~~ended ~~impact~~November 30, ~~our~~2004 ~~net sales~~to ~~and revenues~~$1.8 million ~~Management~~in ~~has~~the ~~partially~~First ~~compensated~~Quarter ~~for~~2006. ~~the~~SG&A ~~maturity~~expenses ~~and~~as ~~decline~~a percentage of ~~this~~net ~~hard copy~~sales ~~imaging~~decreased ~~category~~from by11.4% ~~branching~~in ~~into~~the ~~other~~three ~~hard~~months ~~copy~~ended ~~imaging products such as cut sheet~~November 30, ~~value added~~2004, ~~and add roll products~~ to ~~replace~~10.3% in the ~~lost~~First ~~revenue~~Quarter ~~from~~2006. ~~the~~The ~~sales~~decrease ofin ~~continuous~~SG&A ~~feed products.~~as ~~However,~~a ~~the~~dollar ~~increase~~amount inand ~~revenue~~as ~~attributable~~a topercentage ~~these~~of ~~categories~~sales ~~has~~for three ~~not~~month ~~increased~~period ~~in proportion~~ended toNovember 30, ~~the~~2005, ~~decline~~is ofdue ~~the~~to ~~continuous~~reduction ~~feed~~in ~~business~~labor ~~forms~~and ~~sales~~benefit expenses.

~~The~~Interest Expense ~~most~~— ~~recent~~Interest ~~addition~~expense toincreased ~~our~~from ~~product line~~$239,000 ain ~~complimentary~~the ~~item~~three tomonths ~~hard~~ended ~~copy imaging products~~November 30, ~~for~~2004, ~~office~~to ~~products distributors~~$305,000 isor ~~bottled~~27.8 ~~spring~~%, ~~water~~in ~~which~~First ~~started~~Quarter ~~generating~~2006. ~~sales~~The increase in ~~Fiscal 2005.~~interest ~~Bottled~~expense ~~spring~~by ~~water~~$66,000 ~~did~~in the ~~not~~First ~~utilize~~Quarter ~~our~~2006, ~~existing~~as ~~equipment~~compared ~~and~~to ~~during~~ the ~~start~~corresponding upperiod ~~phase necessitated~~of the ~~acquisition~~prior ofyear ~~new~~is ~~facilities~~due ~~and~~to ~~equipment, thereby depleting capital resources~~the ~~and~~increased ~~reducing~~borrowings ~~liquidity.~~to ~~This,~~fund ~~combined~~the ~~with~~purchase ~~other~~of ~~events,~~our ~~collectively~~water ~~adversely~~bottling ~~impacted operations.~~equipment ~~However,~~and ~~the~~increases ~~long term investment~~ in ~~this~~the prime ~~product~~interest rate.

15Income Taxes — Income tax benefit decreased from a tax benefit of $393,000 in First Quarter 2005 to a tax benefit of $172,000 in the First Quarter 2006. The decrease in income tax benefit for First Quarter 2006, is due to a reduction of losses in the First Quarter of 2006, as compared to the corresponding period of the prior year.

~~Table~~The cessation of ~~Contents~~sales of continuous business forms to a significant customer has had a material impact on our net sales and revenues, and adversely affected our liquidity, capital resources and results of operations. We are currently working to replace this business with other volume purchasers of this product. We have also been successful in introducing other product lines to this customer and will continue to try and recapture the sale of continuous business forms to this company.

~~category~~The ~~will~~decline ~~maximize~~in the ~~efficiency~~ market of ~~our~~continuous ~~selling~~feed ~~force,~~business ~~administration,~~forms ~~and~~has ~~distribution~~begun ~~infrastructure~~to ~~due~~materially toimpact ~~opposite~~our ~~seasonal~~net ~~cycles~~sales ofand ~~consumption~~revenues. ~~Whereas~~Management inhas partially compensated for the ~~summer~~maturity ~~months,~~and decline of this hard copy imaging category by branching into other hard copy imaging products ~~may~~such ~~slow~~as cut sheet, value added, and add roll products to replace the lost revenue from the sales of continuous feed ~~bottled~~products. ~~water~~However, ~~business~~the isincrease atin ~~its~~revenue ~~peak~~attributable to these categories has not increased in proportion to the decline of the continuous feed business forms sales.

~~Liquidity~~The ~~and~~most ~~Capital~~recent ~~Resources~~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

~~We define liquidity as the ability to generate adequate funds to meet our operating and capital~~15 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.

EffectiveTable 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. Contents

~~Available~~water ~~borrowings~~did ~~under~~not ~~this~~utilize ~~line~~our ofexisting ~~credit,~~equipment ~~which~~and ~~accrued~~during ~~interest~~the atstart ~~prime~~up ~~plus~~phase necessitated the ~~applicable prime~~acquisition ~~rate~~of ~~margin~~new ~~(5.25~~facilities % and ~~5.75%~~equipment, ~~respectively,~~thereby atdepleting ~~May 31,~~capital ~~2005),~~resources and ~~are~~reducing ~~based~~liquidity. ~~upon~~This, ~~specified percentages~~combined ofwith ~~eligible~~other ~~accounts~~events, ~~receivable~~collectively ~~and~~adversely ~~inventories~~impacted operations. ~~As of May 31~~However, ~~2005,~~the ~~there~~long ~~was~~term ainvestment ~~$3 million~~in ~~borrowing~~this ~~capacity~~product ~~remaining~~category ~~under~~will maximize the ~~$15 million~~efficiency of ~~revolving~~our ~~line~~selling offorce, ~~credit~~administration, ~~adequate available~~and ~~capital~~distribution toinfrastructure ~~operate~~due ~~our~~to ~~business.~~opposite seasonal Acycles ~~portion~~ of ~~the~~consumption. ~~net~~Whereas ~~proceeds~~in ~~from~~ the ~~sale~~summer ofmonths, ~~our~~hard ~~two~~copy ~~facilities~~imaging ~~located~~products inmay ~~Kearneysville~~slow, ~~West~~the ~~Virginia~~bottled ~~and~~water ~~Greencastle,~~business ~~Pennsylvania~~is ~~will~~at beits ~~applied to reduce the outstanding borrowings on this line (See Footnote 6)~~peak.

~~Borrowings~~Liquidity ~~under~~and ~~our~~Capital ~~line of credit increased from $6.9 million at August 31, 2004, to $8.2 million~~Resources ~~at May 31, 2005, an increase of $1.3 million, or 19%. The increased borrowing primarily resulted from start up costs associated with our new bottled spring water operations.~~

~~Working~~We ~~capital~~define ~~increased~~liquidity as the ability to ~~$13.6 million~~generate asadequate offunds ~~May 31,~~to ~~2005,~~meet ~~from~~our ~~$12.7 million~~operating atand ~~August 31,~~capital ~~2004~~needs. ~~This~~Our ~~represented~~cash anrequirements ~~increase~~are ofprimarily ~~7%.~~for ~~This~~working ~~increase~~capital, iscapital ~~primarily~~expenditures, ~~attributable~~and tointerest and ~~the~~principal $1payments on our debt and capital lease obligations.~~7 million~~ ~~net~~Historically, ~~operating~~these ~~loss~~needs ~~carry~~for cash ~~back~~have ~~created~~been met by ~~net~~cash ~~operating~~flows ~~losses~~from ~~incurred~~operations ~~during~~and ~~the~~borrowings ~~current fiscal~~under ~~year~~our revolving credit facility.

~~Net~~Effective ~~Cash~~June 8, ~~Provided~~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~~/Used~~, inamong other ~~Operating~~things, ~~Investing~~inventory, ~~and~~trade ~~Financing~~receivables, ~~Activities~~and equipment.

~~Our~~Available ~~operating~~borrowings ~~activities~~under ~~used~~this ~~$176,000~~line of ~~cash~~credit, inwhich ~~the~~accrued ~~nine~~interest ~~month~~at ~~period~~prime ~~ended~~plus ~~May~~.25% (7.0 % as of November 3130, 2005), ~~and~~are based upon specified percentages of eligible accounts receivable ~~provided~~and $8inventories.6 As of November ~~million~~30, in2005, ~~cash~~there inwas ~~the~~a ~~nine~~sufficient ~~month~~borrowing ~~period~~capacity ~~ended~~remaining ~~May~~under the $15 ~~31,~~million ~~2004~~revolving line of credit. ~~Operating~~A ~~cash~~portion ~~flows~~of ~~for~~ the ~~nine~~net ~~month~~proceeds ~~period~~from ~~ended~~the ~~May 31~~sale of our facility located in Kearneysville, ~~2005~~West ~~was~~Virginia ~~used~~will ~~primarily~~be ~~for~~applied ~~reductions~~to inreduce ~~accounts~~the ~~payable~~outstanding borrowings on this line (See Footnote 6).

~~Cash~~Borrowings ~~used~~under inour ~~investing~~line ~~activities~~of ~~was~~credit ~~$887,000~~decreased ~~for~~from ~~the~~$6.3 million ~~nine~~at ~~month period ended May~~August 31, 2005., ~~Cash provided~~to ~~by investing activities was~~ $15.6 9 million ~~for~~at ~~the nine month period ended May~~November 3130, ~~2004. Cash used in investing activities for the nine month period ended May 31,~~ 2005, ~~was~~a ~~due~~decrease ~~to expenditures~~of ~~for property~~$411,000, ~~plant~~or ~~and~~6.5%. ~~equipment~~The ~~associated~~decreased ~~with~~borrowing ~~the~~primarily resulted ~~spring~~from ~~water~~reduction ~~bottling~~of ~~facility, partially~~inventory ~~offset~~and bysale ~~proceeds~~of ~~from~~the ~~asset~~Pennsylvania ~~dispositions~~building.

~~Cash~~Working ~~provided~~capital bydecreased ~~financing~~to ~~activities was~~ $111.51 million ~~for~~as ~~the~~of ~~nine month period ended May~~November 3130, 2005., ~~Cash~~from ~~used in financing activities was~~ $1011.4 million ~~for the nine month period ended May 31,~~at ~~2004. Cash provided by financing activities for the nine month period ended May~~August 31, 2005,. ~~was~~This ~~due~~represented toa ~~increased~~decrease ~~borrowings on our line~~ of ~~credit~~2%. ~~and~~This ~~financed~~decrease ~~expenditures~~is ~~associated~~primarily ~~with~~attributable to ~~our~~the ~~new~~$1.1 million ~~bottled~~decrease ~~spring~~in ~~water operations~~inventory .

16Net Cash Provided by/Used in Operating, Investing, and Financing Activities

~~Table~~Our operating activities provided $1.4 million of ~~Contents~~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.

~~Capital~~Cash ~~Expenditures~~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.

~~During~~Cash ~~the~~used ~~nine~~in ~~month~~financing ~~period~~activities ~~ended~~was ~~May~~$1.4 ~~31,~~million ~~2005,~~for wethe ~~incurred~~three ~~capital~~month ~~expenditures~~period ofended ~~$784~~November 30,~~000,~~ ~~consisting~~2005. ofCash ~~equipment~~provided ~~purchases~~by ~~associated~~financing ~~with~~activities ~~our~~was ~~new~~$3.8 million ~~bottled~~for ~~spring~~the ~~water~~three ~~operations.~~month ~~We incurred~~period ~~an additional~~ended ~~$143~~November 30,~~000~~ ~~related~~2004. toCash ~~equipment~~used ~~purchases~~in ~~for~~financing ~~our~~activities ~~hard~~for ~~copy imaging operations. During~~ the ~~nine~~three month period ended ~~May~~November 3130, ~~2004~~ 2005, wewas ~~spent~~primarily ~~$54,000~~used onto ~~capital~~pay ~~expenditures~~down onthe ~~building~~line ~~improvements~~ of ~~our California~~credit, ~~facility~~and toa ~~make~~letter itof ~~ready~~credit ~~for~~which ~~sale.~~was collateral Weon ~~plan~~the towater ~~make~~bottling ~~total~~equipment ~~capital expenditures of approximately $1 million during fiscal 2005~~lease.

~~Future Liquidity~~16

TheTable cessation of sales of continuous business forms to a significant customer, which increased our inventory due to long lead times in purchasing raw materials and decreased our receivables; the issuance of debt to finance our expansion in Itasca, Il,; the occupation of a leased facility in Chambersburg, PA, which resulted in two empty mortgaged facilities since July 2004, and start up operations at our spring water bottling facility, adversely impacted our liquidity and capital resources in the nine month period ended May 31, 2005 as compared to the corresponding period of the prior year. The inventory is being converted to cash, management is continuing to reduce operating costs, contracts on our two empty facilities have been executed and management intends to close the transactions in late August or early September 2005, and we are selling water product. Absent unforeseen circumstances these known trends and uncertainties indicate that we should start returning to profitability in the first quarter of our fiscal 2006 year. Contents

~~Based~~Capital ~~upon current levels of operations and planned improvements in our operating performance,~~Expenditures management believes that cash flow from operations together with liquidation of our building and inventory, and available borrowings under our revolving line of credit will be adequate to meet our anticipated requirements for working capital and debt service through the end of fiscal 2005.

~~Our~~During ~~current~~the ~~level~~three ofmonth ~~indebtedness~~period ~~affects~~ended ~~our~~November 30, ~~ability~~2005, towe ~~obtain~~incurred ~~additional~~$21,000 ~~financing or react quickly to changes~~ in ~~our~~capital ~~industry. We will continue to assess our liquidity position and potential~~expenditures ~~sources~~for ofequipment ~~supplemental~~for ~~liquidity in light of~~ our ~~operating~~water ~~performance~~bottling ~~and other relevant circumstances~~operations. ~~Should~~During wethe ~~determine,~~three atmonth ~~anytime,~~period ~~that~~ended ~~it is necessary to seek additional short-term~~November 30, ~~liquidity~~2004, we ~~will~~spent ~~evaluate~~$329,000 ~~our~~on ~~alternatives~~capital ~~and~~expenditures. ~~take~~We ~~appropriate~~plan ~~steps~~ to ~~obtain~~make ~~sufficient additional~~total ~~funds.~~capital ~~There~~expenditures ~~can be no assurance that any additional financing will be available if~~of ~~needed,~~approximately or$400,000 ifduring ~~available,~~Fiscal ~~will be on acceptable terms~~2006. ~~We have not identified any sources of long~~ ~~term liquidity.~~

AsFuture ~~of May 31, 2005, we did not own derivative or other financial instruments for trading or~~Liquidity 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.

~~Inventory~~The ~~Management~~cessation of sales of continuous business forms to key customers which decreased our receivables; ~~Raw~~start ~~Materials~~up operations at our spring water bottling facility; and escalating freight, fuel, and certain material costs which have not been fully passed through to our customers has adversely impacted our liquidity and capital resources in the first quarter of ~~TST~~the year ending August 31, 2006. Although one empty building was sold in August 2005, one building remains empty and on the market to be sold. As of the date of filing this Form 10-Q, no contract is pending on this facility. Management is contemplating the sale of 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 that our performance may stabilize in our Fiscal 2006 year.

WeBased ~~believe~~upon current levels of operations and planned improvements in our operating performance, management believes that itcash isflow ~~necessary~~from ~~for~~operations ~~TST~~together towith ~~maintain~~the apotential ~~sufficient~~liquidation ~~inventory~~of our buildings, and available borrowings under our revolving line of ~~finished~~credit ~~goods~~should ~~and raw~~be ~~materials~~adequate to ~~adequately~~meet our ~~service~~anticipated ~~its~~requirements ~~customers.~~for Asworking acapital ~~result~~and ofdebt service through the ~~loss~~end of ~~continuous~~fiscal ~~forms~~2006. ~~business~~Such ~~from~~belief ~~key~~is ~~customers,~~based inon ~~January 2005~~certain assumptions, ~~management~~including ~~implemented~~the ancontinuation ~~inventory~~of ~~reduction~~the state of current ~~program.~~operations, ~~Our~~and ~~inventories~~there ~~decreased~~can ~~from~~be ~~$28.6 million~~no asassurance ofthat ~~November 31,~~such ~~2004,~~assumptions ~~the~~are ~~end~~correct. The expansion of our ~~first~~ ~~quarter~~operations ~~for~~into ~~Fiscal~~diversified ~~2005,~~products tomay require ~~$21 million~~us asto ofobtain ~~May 31,~~additional ~~2005~~capital. ~~Management~~We isanticipate ~~continuing~~that tothe ~~streamline ordering~~funds ~~cycles~~required ~~and~~will ~~SKUs,~~be ~~and~~generated through ~~intends~~an toincrease ~~further~~in ~~reduce~~our ~~inventory~~revolving line of credit.

~~TST~~Our ~~bears~~current ~~the~~level ~~risk~~ of ~~increases~~profitability inaffects ~~the~~our ~~prices~~ability ~~charged~~to byobtain ~~its~~additional ~~suppliers~~financing ~~and~~or ~~decreases~~react quickly to changes in ~~the~~our ~~prices of~~industry. ~~raw~~We ~~materials~~will ~~held~~continue into ~~its~~assess ~~inventory.~~our Ifliquidity ~~prices~~position ~~for~~and ~~products~~potential sources ~~held~~of supplemental liquidity in ~~its~~light ~~finished~~of ~~goods~~our operating performance and other relevant ~~inventory~~circumstances. ~~decline~~Should we determine, ifat ~~prices~~anytime, ~~for~~that ~~raw~~it ~~materials~~is ~~required~~necessary byto itseek ~~increase~~additional short-term liquidity, orwe ifwill ~~new~~evaluate ~~technology~~our isalternatives and take appropriate steps to obtain sufficient ~~developed~~additional ~~that~~funds. ~~renders~~There ~~obsolete~~can ~~products~~be ~~distributed~~no ~~and~~assurance ~~held~~that inany ~~inventory~~additional byfinancing ~~TST,~~will ~~the~~be ~~Company’s~~available if ~~business~~needed, ~~could~~or, if available, will be ~~materially~~on ~~adversely~~acceptable ~~affected~~terms. We have not identified any sources of long term liquidity.

17Based upon current levels of operations and planned improvements in our operating performance, management believes that cash flow from operations together with liquidation of our building and inventory, and available borrowings under our revolving line of credit will be adequate to meet our anticipated requirements for working capital and debt service through the end of fiscal 2006.

~~Table~~As of ~~Contents~~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.

InSUPPLY ~~October 2004,~~AND ~~the~~INVENTORY: ~~cost~~HARDCOPY ofIMAGING ~~raw materials increased and we were not able to pass this increase on~~PRODUCTS to all of our customers, this resulted in an erosion of profit margins on certain accounts. We have recently announced an increase in finished goods pricing in an attempt to regain the lost margins from this event.

~~TST~~We ~~purchases~~believe ~~raw~~that ~~paper,~~it ~~coated~~is ~~thermal~~necessary ~~facsimile~~for ~~paper,~~TST ~~coated~~to ~~technical~~maintain ~~paper,~~a ~~carbon~~sufficient inventory of finished goods and ~~carbonless~~raw ~~paper~~materials ~~(consisting~~to ofadequately aservice ~~wide~~its ~~variety~~customers. ofAs ~~weights,~~a ~~widths,~~result ~~colors,~~of ~~sizes~~the ~~and~~loss ~~qualities), transparency~~of ~~film,~~continuous ~~packaging~~forms business ~~and~~from ~~other~~key ~~supplies~~customers, in ~~the~~January 2005, ~~open~~management ~~market~~implemented ~~from~~another aphase ~~number~~ of ~~different~~an inventory ~~companies~~reduction ~~around~~program. ~~the~~Our ~~world~~inventories decreased from $16.8 million Weas ~~believe~~of ~~that~~November 31, ~~TST~~2004, ~~has~~to ~~adequate~~$15.7 million ~~sources~~as of ~~raw~~November 30, ~~material~~2005. ~~supplies~~Management ~~to meet~~is ~~the~~continuing ~~requirements~~to ofstreamline ~~its~~ordering ~~business.~~cycles Weand ~~believe~~SKUs, but ~~that~~does ~~TST~~not ~~has~~intend ato ~~good~~further ~~relationship~~reduce ~~with~~inventory ~~all~~since ofmeeting ~~its~~ their current ~~suppliers~~goals for inventory levels.

~~Market Conditions~~17

SinceTable our inception, the largest product category produced by the Company was continuous feed business forms. Competitors in the marketplace have aggressively solicited our customers. As a result of the loss of continuous forms business from key customers, in January 2005 the Company downsized its operations. We believe we will be able to replace the majority of this lost business with other customers or other products. Management believes that the market for continuous forms will continue to decline in 2005 through 2006, but then may stabilize. Recently, Point of Sales Rolls increased to become the largest segment of our business. This is a significant milestone of our transition into growth product categories of hard copy imaging products. Contents

~~Although~~Pricing ~~TST~~for ~~has~~certain ~~specialized~~components inof ~~select~~our ~~markets~~finished ~~and~~goods ~~has~~increased ~~emphasized~~in ~~service~~First ~~and~~Quarter ~~long-term relationships~~2006. toNot ~~meet~~all ~~customer~~of these ~~needs~~increases ~~more~~were effectively, ~~there~~passed ~~are~~through noto ~~long-term~~our ~~contractual relationships~~customers, ~~between it~~ and ~~any~~there ~~of its customers. There~~ can be no assurance that ~~purchases~~we ~~by these customers~~ will ~~remain~~be atable ~~significant~~to ~~levels.~~increase ~~TST~~finished ~~may~~goods inpricing at the ~~future~~same bepace ~~dependent~~as onthe ~~these~~increases orin ~~other~~component ~~significant customers~~materials. ~~The~~Our ~~loss~~inability ofto ~~any~~pass ~~other~~along ~~significant~~raw ~~customer~~material ~~could~~and component increases could materially adversely ~~affect~~ effect our financial position, and results of ~~operations~~operation. We believe that paper stock raw material and ~~cash~~component ~~flows~~prices may in increase in Fiscal 2006.

~~The~~TST ~~Company~~bears ~~also believes that its entrance into~~ the ~~bottled~~risk ~~water business is significant as we begin the diversification~~ of ~~our~~increases ~~product~~in ~~offerings out of continuous computer paper. The introduction of water into our paper business is an ideal companion sale as~~ the ~~distribution~~prices ~~model for~~charged ~~our~~by ~~water~~its ~~products~~suppliers ~~is substantially similar to our paper products. Many of the customers who are currently purchasing business imaging supplies from us also buy bottled water. The weight~~ and ~~dimensions~~ ofdecreases ain ~~pallet of water and paper, and therefore~~ the ~~costs, are also similar. The~~prices ~~introduction~~ of ~~water~~raw ~~should~~materials ~~expand~~held ~~our~~in ~~sales~~its ~~to our existing customers~~inventory. ~~The~~If ~~bottled~~prices ~~water~~for ~~business has~~products ~~experienced~~held ~~phenomenal growth~~ in ~~the~~its ~~past~~finished ~~few~~goods inventory ~~years.~~decline, Weor ~~plan~~if toprices ~~effectively~~for ~~compete~~raw inmaterials ~~the wholesale~~required ~~market~~ by ~~offering~~it ~~competitive~~increase, ~~price~~or ~~points~~if onnew ~~our~~technology ~~water products. We believe our target~~is ~~market~~developed isthat ~~private~~renders ~~label.~~obsolete ~~The~~products ~~private~~distributed ~~label~~and ~~water~~held ~~market grew approximately 29%~~ in ~~2004.~~inventory Inby ~~Third Quarter 2005~~TST, ~~we engaged an independent sales representative with extensive experience and contacts in~~ the ~~bottled beverage industry to assist our marketing efforts. We believe the addition of this~~Company’s ~~key~~business ~~individual~~could ~~should~~be ~~greatly~~materially ~~enhance~~adversely ~~our exposure in this market~~affected.

~~Seasonality~~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.

~~TST~~SUPPLY ~~may~~AND beINVENTORY: ~~subject~~NATURAL toSPRING ~~certain~~BOTTLED ~~seasonal fluctuations in that orders for products may decline over~~WATER ~~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~~In Fiscal 2005, we started building bottled water inventory at our one bottling and four hardcopy image manufacturing facilities.~~com~~ ~~revenues~~We ~~are~~do ~~partially~~not ~~generated~~store bybottled ~~retail~~water ~~sales~~products ~~which~~at ~~are~~public ~~typically~~warehouses. Hurricanes ~~stronger~~Katrina ~~during~~and Rita created a large demand for our water products and substantially depleted our initial inventory. Water inventory requires more frequent inventory turns than hardcopy imaging products, since the ~~Christmas~~shelf ~~holiday~~life ~~season~~of 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.

~~The~~Bottling ~~bottled~~and ~~water~~distribution ~~business~~costs, isincluding ~~subject~~plastic, fuel, and freight charges increased in First Quarter 2006. Not all of these increases were effectively passed through to ~~seasonal~~our ~~fluctuations~~customers, ~~with~~and there ~~its~~can ~~demand~~be ~~cycle~~no ~~greatest~~assurance inthat we will be able to increase finished goods pricing at the same pace ~~summer~~as ~~months~~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.

18Effective 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.

~~Table~~MARKET ofCONDITIONS ~~Contents~~OF TST

~~Forward~~Although TST has specialized in select markets and has emphasized service and long-~~Looking~~term relationships ~~Statements~~to meet customer needs more effectively, there are no long-term contractual relationships between it and any of

~~This Form 10-Q may contain forward looking statements. Many of these forward looking statements~~18 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.

ItemTable 3.of Quantitative and Qualitative Disclosures about Market RiskContents

Weits ~~are~~customers. ~~not~~There ~~exposed~~can tobe ~~market~~no ~~risks~~assurance ~~such~~that aspurchases ~~foreign currency exchange rates, but are exposed to~~by ~~risks~~these ~~such~~customers aswill ~~variable~~remain ~~interest~~at ~~rates~~significant levels. ~~Market~~TST ~~risk~~may isin the ~~potential~~future ~~loss~~be ~~arising~~dependent ~~from~~on ~~adverse changes~~these ~~in market prices and rates. Our subsidiaries do not have supply contracts with any of~~or ~~their~~other ~~foreign~~significant ~~vendors~~customers. ~~All~~The ~~foreign~~loss ~~vendors are paid in United States currency. In addition, TST’s international sales~~ of ~~finished~~any ~~goods~~other ~~are~~significant ~~insignificant.~~customer ~~Accordingly,~~could ~~there~~materially ~~are not~~adversely ~~sufficient~~affect ~~factors~~our tofinancial ~~create a material foreign exchange rate risk; therefore~~position, weresults ~~do not use exchange commitments to minimize the negative impact~~ of ~~foreign~~operations ~~currency~~and ~~fluctuations~~cash flows.

WeHistorically, ~~had~~the ~~both~~primary ~~fixed-rate~~product ~~and~~produced ~~variable-rate~~by ~~debts~~the asCompany was continuous feed business forms. In Fiscal 2005, for the first time in our history of ~~May~~almost 30 31years, ~~2005.~~the ~~The~~sales ~~fair~~of ~~market~~continuous ~~value~~forms fell to below 50% of the gross revenue for all products. Management believes that the total market ~~long-term~~for ~~variable~~business ~~interest~~forms, ~~rate~~which ~~debt~~declined isin ~~subject~~2005, will continue to ~~interest~~decline ~~rate~~in ~~risk~~2006. Our ~~exposure~~percentage toof revenue ~~interest~~derived from this product decreased from 53% in the year ended August 31, 2004 (“Fiscal ~~risks~~2004”) isto ~~not~~36.9% ~~material~~in Fiscal 2005. ~~Generally~~Management expects this product category’s contribution percentage to sales to stabilize in Fiscal 2006, partially due to the ~~fair~~recognition ~~market~~of ~~value~~the loss of ~~variable~~portions ~~interest~~or all ~~rate~~the ~~debt~~business ~~will~~of key customers in Fiscal 2005 and management’s anticipation of retaining current ~~decrease~~customers, asor ~~interest~~regaining ~~rates~~lost ~~fall~~business in this product category. Recently, engineering/ wide format rolls and ~~increase~~Point asof ~~interest~~Sales ~~rates~~Rolls ~~rise~~increased to become the largest segment of our business. This is a significant milestone of our transition into what management believes is the greatest growth product categories of hard copy imaging products. The Company is also emphasizing its marketing efforts on these more profitable portions of the business.

The ~~estimated~~loss ~~fair value~~ of ~~our~~significant ~~total~~customers, ~~long-term~~mergers ~~fixed~~of ~~rate~~customers, and ~~floating~~loss ~~rate~~of ~~debt~~portions ~~approximates carrying~~of ~~value.~~business ~~Based~~from certain ~~upon~~customers ~~our~~has ~~market~~reduced ~~risk~~sales ~~sensitive~~in ~~debt~~Fiscal ~~outstanding at May 31,~~ 2005, ~~there~~but ~~was no~~management ~~material~~believes ~~exposure~~sales torevenue ~~our~~will stabilize ~~financial~~in ~~position~~Fiscal or2006 ~~results~~at ofFiscal ~~operations~~2005 levels.

~~Item~~The 4entrance into the bottled water business is significant as we begin the diversification of our product offerings outside of the hardcopy imaging products. ~~Controls~~The introduction of water into our paper business is an ideal companion sale as the distribution model for our water products is substantially similar to our paper products. Many of the customers who are currently purchasing business imaging supplies from us also buy bottled water. The weight and ~~Procedures~~dimensions of a pallet of water and paper, and therefore the costs, are also similar. The introduction of water should expand our sales to our existing customers. The bottled water industry has experienced phenomenal growth in the past few years.

~~Evaluation~~In ofthe ~~controls~~water industry we plan to effectively compete in the wholesale market by offering competitive price points on our water products and ~~procedures~~bundled distribution strategies. We have also 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 believe the growing trend of businesses offering their clientele bottled water with their name on the label as promotional giveaway or for resale will contribute to the increased sales in the bottled water division.

~~Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial~~Seasonality Officer, the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s amendments to its disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. No material changes to controls have occurred in the current quarter.

19TST 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.

~~Table~~Hotsheet.com ofrevenues ~~Contents~~are partially generated by retail sales which are typically stronger during the Christmas holiday season.

~~PART~~The ~~II:~~bottled ~~OTHER~~water ~~INFORMATION~~business is subject to seasonal fluctuations with its demand cycle greatest in summer months.

~~Item 1. Legal Proceedings.~~19

SeeTable 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. Contents

~~Item~~Forward-Looking ~~2. Unregistered Sales of Equity Securities and Use of Proceeds.~~Statements

~~None~~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. ~~Defaults~~Quantitative ~~upon~~and ~~Senior~~Qualitative ~~Securities.~~Disclosures about Market Risk

~~None~~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.

~~Item~~We 4had both fixed-rate and variable-rate debts as of November 30, 2005. ~~Submission~~The fair market value of long-term ~~Matters~~variable interest rate debt is subject to ainterest ~~Vote~~rate risk. Our exposure to interest risks is not material. Generally the fair market value of ~~Security~~variable ~~Holders~~interest rate debt will decrease as interest rates fall and increase as interest rates rise.

~~None~~The estimated fair value of our total long-term fixed rate and floating rate debt approximates carrying value. Based upon our market risk sensitive debt outstanding at November 30, 2005, there was no material exposure to our financial position or results of operations.

Item 5 4. ~~Other~~Controls ~~Information.~~and Procedures

~~None~~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 30, 2005 are as follows:

~~Item~~a) 6.They ~~Exhibits~~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.

~~Exhibits~~b) toThere ~~Part~~were no changes in the Company’s internal controls during the quarter ended November 1.30, 2005 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

PART II: OTHER INFORMATION

20Item 1. Legal Proceedings.

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

~~SIGNATURES~~20

PursuantTable 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. Contents

~~Dated: July~~Item ~~15,~~2. ~~2005~~Unregistered Sales of Equity Securities and Use of Proceeds. None

~~Impreso, Inc~~Item 3. ~~(Registrant)~~Defaults ~~/s/~~upon ~~Marshall~~Senior DSecurities. ~~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~~None

21Item 4. Submission of Matters to a Vote of Security Holders. None

~~Table~~Item 5. ofOther ~~Contents~~Information. None

Item 6. 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.

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.

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 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

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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ItemTable 3.of Quantitative and Qualitative Disclosures about Market RiskContents

SeeTable 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. Contents

PursuantTable 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. Contents

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Filing Compare · IMPRESO INC