UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

Commission File Number 000-29883

Impreso, Inc.

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

     Yes þ No o

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

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

IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
May 31, 2004

INDEX

IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

ASSETS
(Unaudited)

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

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IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDERS’ EQUITY
(Unaudited)

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

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IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

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IMPRESO, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

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

1. ORGANIZATION AND NATURE OF BUSINESS

Impreso, Inc., (formerly Impreso.com, Inc.) a Delaware corporation (referred to collectively with its subsidiaries as the “Company”), is the parent holding company of TST/Impreso, Inc. (“TST”), a manufacturer and distributor to dealers and other resellers of paper and film products for commercial and home use in domestic and international markets, and Hotsheet.com, Inc., the owner and operator of the Hotsheet.com web portal. TST’s product line consists of standard continuous computer stock business forms; thermal facsimile paper; cut sheet products such as copy paper, ink jet paper, digital photo paper and transparencies; fine business stationary; point of sale and cash register machine rolls; high speed laser roll paper; wide format engineering rolls; wide format ink jet media; and processed laser cut sheets. TST has one wholly owned subsidiary, TST/Impreso of California, Inc., which was formed to support the activities of the paper converting segment of the Company’s business.

2. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the unaudited Interim Condensed Consolidated Financial Statements of the Company include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position as of May 31, 2004, and its results of operations for the three and nine months ended May 31, 2004 and May 31, 2003. Results of the Company’s operations for the interim period ended May 31, 2004, may not be indicative of results for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”).

The unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes of the Company and its subsidiaries, included in the Company’s Form 10-K, (the “Company’s Form 10-K”), for the fiscal year ended August 31, 2003 (“Fiscal 2003”). Accounting policies used in the preparation of the unaudited Interim Condensed Consolidated Financial Statements are consistent in all material respects with the accounting policies described in the Notes to Consolidated Financial Statements in the Company’s Form 10-K.

3. NEW ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment to SFAS No. 123". This statement provides alternative methods of transition for companies that elect to voluntarily change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company currently does not intend to change to the fair value based method of accounting for stock-based compensation, but will adhere to the disclosure requirements of the Statement. The Company has adopted the disclosure requirements for the year ending August 31, 2004 (“Fiscal 2004”).

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In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN No. 46). FIN No. 46 requires companies with a variable interest in a variable interest entity to apply this guidance immediately to such entities created after January 31, 2003, and in the first year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The application of the guidance could result in the consolidation of a variable interest entity. The company is currently evaluating whether Alexia Springs Water Company is a variable interest entity, whether the company is the primary beneficiary (as defined in FIN No. 46) and, if so, the impact of this interpretation on the financial position and the results of operations.

4. INVENTORIES

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

Inventories consisted of the following:

5. LONG-TERM DEBT AND LINE OF CREDIT:

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

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

On January 5, 2004, TST elected to implement the euro dollar interest rate of 1.152 % plus 2.75%, to $5,000,000 of the Company’s outstanding line of credit balance. This rate was locked until April 5, 2004, after which the entire line reverted to prime plus .25%.

On May 6, 2004, TST amended its revolving line of credit to decrease the line from $25 million to $10 million. The amended revolving credit line is limited to the lesser of $10 million or a percentage of eligible trade accounts receivable and inventories, as defined. The remaining availability under the revolving credit line was $5.2 million as of May 31, 2004.

The line of credit, as amended, has a restrictive covenant requiring the maintenance of a minimum tangible net worth, as defined in the agreement. One of the notes payable contains restrictive covenants on current and debt to worth ratio, and the payment of cash dividends. As of May 31, 2004, the Company was in compliance with all covenants.

6. SUPPLEMENTAL CASH FLOW INFORMATION

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7. STOCK OPTIONS

The Company accounts for the Incentive Stock Option Plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based compensation costs are reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

8. Legal Matters

TST is a defendant in a suit filed in Fiscal 2003 for the collection of sums due under two promissory notes. These liabilities are included on the Company’s balance sheet. TST recently prevailed in its motion to stay the adversary proceeding and to compel arbitration in Dallas, Texas under the terms of the parties purchase agreement. TST asserts that liability does not exist because of fraud and contractual breaches in connection with the agreements.

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On October 9, 2003, in the United States District Court Central District of California Southern Division, Avery Dennison Office Products Company and Avery Dennison Corporation (“Avery”) filed a patent infringement lawsuit against TST claiming TST’s corporate cut business card products infringed on patents and pending patents owned by Avery. On March 11, 2004, the parties executed a confidential settlement agreement, which includes TST’s agreement to discontinue selling corporate cut business card products. Management believes that the discontinuation of the sale of these products will not have a material impact on our financial position or results of operations. On January 14, 2004, the Company filed suit against two vendors of the infringing products claiming breach of UCC warranties for selling to TST/Impreso, Inc. patent infringing goods. The Company also filed a claim with its insurance carrier requesting coverage. The insurance companies have determined the policies in effect during the relevant time frame do not cover these types of claims.

On November 5, 2003, the Company discovered the Company’s payroll administrator was fraudulently diverting Company funds into her personal bank account. The payroll administrator admitted guilt to the FBI and the internal investigator of the Company’s bank. The investigation by the FBI, the bank and the Company revealed a loss of approximately $628,000 over a period starting in September 2000 until October 2003. The investigation is complete. The Company has notified its insurance companies of the loss under its employee theft coverage. The current insurer offered a $258,000 claim adjustment for the entire loss. The company has engaged counsel, and a demand has been made on the insurer to cover the entire loss, as a result of recent legal developments which could be persuasive in litigating different interpretations of defined terms within the policy. The FBI has notified the Company that the employee plead on information and will be incarcerated as a result of the embezzlement.

In December 2003, TST/Impreso, Inc. entered into a settlement agreement with a customer due to a dispute concerning catalog fees. The settlement requires TST to issue a credit memo for the benefit of the customer in the amounts of $50,000, $25,000 and $25,000 on December 31, 2004, June 30, 2005, and December 31, 2005, respectively.

In April 2004, TST filed a lawsuit in the 68th judicial district Dallas County against two former outside sales representatives and a competitor, alleging breach of fiduciary duty, tortious interference with existing and prospective business relations, and civil conspiracy. The lawsuit seeks to enforce the duties of loyalty owed to TST by its sales agents, and also protect TST from any unfair business practices of TST’s competitors. The competitor filed a counter claim alleging business disparagement and tortious interference with existing and prospective business relations.

9. Subsequent Events

In June 2004, the Company exited its leased Elk Grove, Illinois plant, moving all production into the substantially completed Itasca, Illinois 34,500 square foot expansion. In July 2004, the Company will complete its exit of the West Virginia facility, moving all production into the Company’s newly renovated Chambersburg, Pennsylvania location. The Company intends to exit the Greencastle, Pennsylvania building and move all operations into the Chambersburg facility by September 2004. The West Virginia and Greencastle buildings are currently up for sale. No contracts have been executed as of the date of this filing.

On July 9, 2004, we received a demand from the trustee of a bankrupt customer in the amount of $1.2 million. This demand is a gross preference demand and we believe subsequent to a full preference analysis and the company’s utilization of various defenses, any liability should be lowered to a materially reduced amount.

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

CRITICAL ACCOUNTING POLICIES

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

Accounts Receivable (doubtful accounts) Reserves

The Company provides for losses on accounts receivable based upon their current status, historical experience and management’s evaluation of existing economic conditions. Significant changes in customer profitability or general economic conditions may have a significant effect on the Company’s allowance for doubtful accounts.

Revenue Recognition

TST’s sales are recorded when products are shipped to customers. TST is reasonably assured a majority of the sales are collectible upon shipment due to its credit policies and collection methods. For those accounts TST is not reasonably assured of collection the Company reserves against doubtful accounts based upon historical experience and management’s evaluation of existing economic conditions. Hotsheet.com, Inc. generates its revenue by click through fee advertising revenues and commissions earned. Click through fees are generated when traffic is sent from the Hotsheet.com website, via a link, to a vendors website. Commissions are generated when the linked traffic makes purchases. The revenue is recognized upon receipt.

Inventories

Inventories are valued at the lower of cost or market, cost being determined on the first-in, first-out method. Reserves for slow moving, obsolete products, or bad (damaged) products are based on historical experience, acquisition activities, and secured lender policies. The Company evaluates, and if necessary, adjusts reserves quarterly.

Historically, the Company has not reserved for slow moving, obsolete or bad inventories. Substantially all of the slow moving products can be repackaged into different formats or labels. Demand for products that are associated with obsolete technology slowly decline as sales of new hardware requiring new or different consumables increase. The reduced demand for products which are becoming obsolete is easily monitored and scheduled production of these items is adjusted accordingly. If damage is caused to a product it is most often minor in value and expensed as damage occurs.

The Company records reductions in revenue when products are returned. Returns and allowances are monitored based on a historical percentage of sales. All returns must be approved by the Company prior to the product being returned, and in some instances a restocking fee is charged to the customer. The Company also monitors reasons for return, such as quality, shipping errors or ordering errors.

Commissions and Rebates

The Company reserves commissions and rebates paid to certain customers based on specific contractual agreements. These reserves are calculated based upon sales by customer, and adjusted monthly to reflect increases and decreases in each customer’s sales and payments of commissions and rebates.

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Results of Operations for the Interim Periods Ended May 31, 2004 and May 31, 2003.

Net Sales—Net sales decreased from $ 28.9 million in the three months ended May 31, 2003, to $26.8 million in the three months ended May 31, 2004 (“Third Quarter 2004”), a decrease of $ 2.1 million or 7.2%. Net sales decreased from $92.4 million in the nine months ended May 31, 2003, to $ 81.7 million in the nine months ended May 31, 2004, a decrease of $ 10.7 million or 11.6%. Net sales decreased in the three month period ended May 31, 2004, as compared to the corresponding period of the prior year, as a result of the loss of sales to a large customer in April 2004. Net sales decreased in the nine month period ended May 31, 2004, as compared to the corresponding period of the prior year, as a result of new IBM licensees starting to manufacture the same IBM products the Company manufactures, and comparative lower finished goods pricing.

Gross Profit-— Gross profit remained stable at $3.2 million for the three months ended May 31, 2003 and May 31, 2004. Gross profit decreased from $9.7 million in the nine months ended May 31, 2003, to $9.6 million in the nine months ended May 31, 2004, a decrease of 1.2%. Gross profit margin for the three month period ended May 31, 2004, increased to 11.9%, as compared to 11.25% for the corresponding period of the prior year. Gross profit margin for the nine month period ended May 31, 2004, increased to 11.7% as compared to 10.5% for the nine month period ended May 31, 2003. The contrast of the decrease in gross profit and the increase in gross profit margin for three and nine month periods ended May 31, 2004, resulted from lower overhead and raw material costs.

Selling, General, and Administrative Expenses—SG&A expenses remained stable at $ 2.3 million in the three months ended May 31, 2003 and May 31, 2004. SG&A expenses decreased from $ 7.1 million in the nine months ended May 31, 2003 to $ 6.9 million in the nine months ended May 31, 2004. This decrease was primarily the result of the elimination of overtime, reduction in workforce and employee benefits. SG&A expenses as a percentage of net sales increased from 8.1% in the three months ended May 31, 2003, to 8.6% in the Third Quarter 2004. SG&A expenses as a percentage of net sales increased from 7.7% in the nine months ended May 31, 2003, to 8.4% in the nine months ended May 31, 2004. The increase in SG&A as a percentage of sales for three and nine months ended May 31, 2004, is due to the decrease in net sales.

Interest Expense—Interest expense decreased from $ 425,000 in the three months ended May 31, 2003, to $ 244,000 in Third Quarter 2004. Interest expense decreased from $ 1.4 million in the nine months ended May 31, 2003, to $ 876,000 in the nine months ended May 31, 2004. The decrease of 42.6% in the three months ended May 31, 2004, and the decrease of 36.7% in the nine months ended May 31, 2004, is due to the reduction of inventories which reduced our borrowings under our line of credit and decreased interest rates from implementation of the Eurodollar rate on our floating lines of credit.

Income Taxes-— Income tax expense decreased from $ 217,000 for the three months ended May 31, 2003, to $ 207,000 in Third Quarter 2004. Income tax expense increased from $560,000 for the nine months ended May 31, 2003, to $678,000 in the nine months ended May 31, 2004.The increase in income tax expense for Third Quarter, as compared to the corresponding period of the prior year is a result of the taxable gain on the sale of our California buildings.

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Liquidity and Capital Resources

Working capital increased to $14.5 million as of May 31, 2004, from $12.7 million at August 31, 2003. This represented an increase of 14.4%.

Effective May 6, 2004, TST amended its loan agreement with a commercial financial corporation to mature on November 17, 2005. The amended agreement provides for a $10 million line of credit and an inventory sub-limit of $10 million. The amended loan is secured by, among other things, inventory, trade receivables, and equipment. The personal guarantee of Marshall Sorokwasz, our Chairman of the Board and President, and Trustee of a trust which is a principal shareholder of our Company was released. The amended loan agreement allows the Company to elect the application of a Eurodollar interest rate plus 2.25% if excess availability is $10 million or more, 2.50% if excess availability is between $5 to $10 million and 2.75% if excess availability is below $5 million. The Libor rate can be elected for 30, 60 or 90 day periods to specified amounts of the loan.

On January 5, 2004, TST elected to implement the euro dollar interest rate of 1.152 % plus 2.75%, to $5,000,000 of the Company’s outstanding loan balance. This rate was locked until April 5, 2004, after which the entire line reverted to prime plus .25%.

Available borrowings under this line of credit, which accrued interest from January 5, 2004 to April 5, 2004, on $5 million, at LIBOR plus 2.75% (3.902 % as of April 5, 2004), balance at prime plus .25% (4 % as of May 31, 2004), are based upon specified percentages of eligible accounts receivable and inventories. As of May 31, 2004, we have adequate capital available to operate our business.

On April 22, 2003, we executed a one-year, $1.4 million construction loan with the current mortgagee of the Itasca, Illinois building to expand the building an additional 34, 500 square feet. We expect the expansion to be completed by July 2004. As a result, the Mortgagee agreed to a second extension of the construction loan to September 22, 2004, when the existing mortgage and the construction loan will be combined into one note.

On April 5, 2004, the Company sold and simultaneously executed a five year lease for its two California buildings. The current monthly rental is $21,385. The total sales price for the two buildings was $2.903 million. After paying off the $1.660 million mortgage, the net proceeds before tax of the sale were approximately $1.127 million. The net book gain of approximately $857,000 will be amortized over the five year lease period.

We believe that the funds available under the loans encumbering our Texas, Pennsylvania, Illinois and West Virginia plants, the construction loan for the expansion at the Itasca facility, the revolving credit facility, cash and cash equivalents, trade credit and internally generated funds will be sufficient to satisfy our requirements for working capital and capital expenditures for at least the next twelve months. Such belief is based on certain assumptions, including the continuation of current operations and no extraordinary adverse events, and there can be no assurance that such assumptions are correct. In addition, expansion of our operations due to an increased demand for products TST manufactures or significant growth of Hotsheet.com, Inc., or Alexa Springs, Inc., our water bottling subsidiary, may require us to obtain additional capital to add new operations or manufacturing facilities. If that should occur, we anticipate that the funds required would be generated through securities offerings or additional debt. There can be no assurance that any additional financing will be available if needed, or, if available, will be on acceptable terms.

As of May 31, 2004, we did not own derivative or other financial instruments for trading or speculative purposes. The implementation of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” does not have a material impact on our financial position or results of operations.

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Alexa Springs, Inc. bottled water subsidiary

In January 2004, TST announced it was entering the bottled water business. In March 2004, the Company submitted approximately $1.9 million in orders to manufacturers for the water processing equipment, with an expected delivery date of July 2004. In July 2004, Alexa Springs, Inc was incorporated in the state of Texas. Alexa Springs, Inc. will be the wholly owned subsidiary of Impreso, Inc. and will operate the bottled water business. Alexa Springs, Inc. will lease a building and purchase its spring water from Alexa Springs Water Company, an entity owned by Marshall Sorokwasz and Richard Bloom, President and Vice President of the Company. As of May 31, 2004 TST/Impreso, Inc. had advanced out of operating funds $766,000 to equipment manufacturers on behalf of Alexa Springs, Inc. As of June 30, 2004, that amount increased to $1.7 million.

Inventory Management; Raw Materials of TST

We believe that it is necessary for TST to maintain a sufficient inventory of finished goods and raw materials to adequately service its customers. In the past inventory levels had been increased to facilitate the introduction of new brands and expanded product lines. At the beginning of Fiscal 2002, we implemented a program to reduce inventory. From September 1, 2001 to May 31, 2004, TST inventory levels were reduced from $38,459,817 to $20,999,761, or approximately 45.4%. This is in addition to the depletion of $3 million of inventory acquired in the purchase of the assets of United in March 2002. Management does not intend to continue reducing inventory through Fiscal 2004, as a result of the tightening paper supply market.

During the third and fourth quarter of Fiscal 2003, the price of raw materials dropped rapidly. Prices continued to decrease through the first quarter of Fiscal 2004, but in the second quarter of Fiscal 2004, stabilized and started an upward trend. On March 1, 2004 and May 1, 2004 price increases on raw materials were announced by the mills, which were effectively passed through to a majority of our customers by the end of the Third Quarter. Another increase has been announced for July 1, 2004. We believe that prices will continue to increase in the remaining quarter of Fiscal 2004 and into the year ending August 31, 2005.

TST bears the risk of increases in the prices charged by its suppliers and decreases in the prices of raw materials held in its inventory. If prices for products held in its finished goods inventory decline, if prices for raw materials required by it increase, or if new technology is developed that renders obsolete products distributed and held in inventory by TST, the Company’s business could be materially adversely affected.

TST purchases raw paper, coated thermal facsimile paper, coated technical paper, carbon and carbonless paper (consisting of a wide variety of weights, widths, colors, sizes and qualities), transparency film, packaging and other supplies in the open market from a number of different companies around the world. We believe that TST has adequate sources of raw material supplies to meet the requirements of its business. We believe that TST has a good relationship with all of its current suppliers.

Market Conditions

The primary product produced by the Company is continuous feed business forms. Management believes that the market for business forms, which declined in Fiscal 2004, will continue to decline in Fiscal 2005. In addition, competitors in the marketplace have aggressively solicited existing TST customers. On April 9, 2004, TST declined to counter offer a competitor’s proposal on a particular product to a significant customer. This product comprised a majority of our sales to this customer. The customer has decided to move their business on this product to the competitor. The transition will take place over the Fourth Quarter of Fiscal 2004. The lost business, which is approximately 20% of net sales in Fiscal 2003, will be partially offset by the addition of new customers and the increased sale of other products to this customer in existing and new territories.

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If selling prices for products manufactured by us cannot increase in relation to raw material cost increases, or if prices for products manufactured by us decline as a result of market pressures, our results of operations could be materially adversely affected.

Although TST has specialized in select markets and has emphasized service and long-term relationships to meet customer needs more effectively, there are no long-term contractual relationships between it and any of its customers. There can be no assurance that purchases by these customers will remain at significant levels. TST may in the future be dependent on these or other significant customers. The loss of any other significant customer could materially adversely affect our financial position, results of operations and cash flows.

Seasonality

TST may be subject to certain seasonal fluctuations in that orders for products may decline over the summer months. If the market for finished goods decreases, then the adverse impact of the seasonal fluctuations on the Company will be greater.

Hotsheet.com revenues are partially generated by retail sales which are typically stronger during the Christmas holiday season.

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form 10-Q contain “forward-looking statements” about our prospects for the future, including but not limited to our ability to generate sufficient working capital, our ability to continue to maintain sales to justify capital expenses, and our ability to generate additional sales to meet business expansion. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including availability of raw materials, availability of thermal facsimile, computer, laser and color ink jet paper, to the cyclical nature of the industry in which we operate, the potential of technological changes which would adversely affect the need for our products, price fluctuations which could adversely impact the large inventory we require, loss of any significant customer, and termination of contracts essential to our business. Parties are cautioned not to rely on any such forward-looking statements or judgments in making investment decisions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

We had both fixed-rate and variable-rate debts as of May 31, 2004. The fair market value of long-term variable interest rate debt is subject to interest rate risk. Generally the fair market value of variable interest rate debt will decrease as interest rates fall and increase as interest rates rise.

The estimated fair value of our total long-term fixed rate and floating rate debt approximates carrying value. Based upon our market risk sensitive debt outstanding at May 31, 2004, there was no material exposure to our financial position or results of operations.

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Item 4. Controls and Procedures

     Evaluation of controls and procedures

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s amendments to its disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

See note 8 to condensed consolidated financial statements contained in Part I, Item 1 of this report, which is incorporated by reference in this Part II, as its Item 1.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

None

Item 3. Defaults upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

In the second quarter of Fiscal 2004, the Company received notice from the Internal Revenue Service that the Fiscal 2002 year was to be audited. The Company engaged KPMG, LLP to help the Company manage the audit process. As of the date of this filing the audit was concluded, but the IRS report had not been received.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits to Part 1.

(b) Reports on Form 8-K

None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: July 15, 2004

	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

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Exhibits

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