**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q/A**

**(Amendment #2)**

**(Mark One)**
| **ý**                                              |   | **QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|
|                                                    |
| **For  the quarterly period ended March 31, 2004** |
|                                                    |
| **o**                                                   |   | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE EXCHANGE ACT**                         |
|                                                    |
| **Commission  File No. 0-31267**                   |

 

**IWTTESORO CORPORATION**

(Exact Name of SmallBusiness Issuer in Its Charter)

 

| **Nevada**                                                       | ** ** | **91-2048019**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification Number) |

 

**101 PostRoad West, Suite 10, Westport, CT 06880**

(Address of principalexecutive offices)

 

**(203) 221-2770**

(Issuer’s TelephoneNumber, including area code)

 

 

(Former Name, FormerAddress and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of theExchange Act:**NONE**

Securities registered pursuant to Section 12(g) of theExchange Act:**Common Stock, $.001 Per Share**

 

Check whether the issuer: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days:

| ýYes |   | oNo |
|-----------|--------|-----|

 

Indicate by check mark whether the registrant is an accelerated files(as defined in Rule 12b-2 of the Exchange Act)    oYes    ýNo

 

State the number of shares outstanding of each of the issuer’s class ofcommon equity, as of May 13, 2004:  11,683.102 shares

 

Transitional Small Business Disclosure Format:    oYes          ýNo

 

 

----

 

EXPLANATORY NOTE

 

Tesoro hasrestated the consolidated balance sheets as of March 31, 2004 and December 31,2003, and the consolidated statements of operations, stockholders’ equity andcash flows for the three month ended March 31, 2004 and 2003,respectively.  In particular, managementdetermined that Tesoro had been incorrectly calculating the accruals for salescommissions. Management revised this calculation and determined that accruedexpenses were understated by approximately $473,000 as of March 31, 2004.Management also determined that the Company had been incorrectly calculatingthe allowances for product returns. Management revised this calculation anddetermined that accounts receivable and net sales were overstated byapproximately $77,000 as of the quarter ended March 31, 2004.Additionally, management reassessed its methodology for accounting for sampleand display boards and determined that this promotional merchandise should havebeen expensed when distributed rather than capitalized and depreciated. Theadjustments resulting from the restatement increased net loss by approximately$412,000 for the three month ended March 31, 2004. This change alsoreduced property and equipment as of March 31, 2004 by approximately$3,392,000.  Finally, as part of therecapitalization transaction of IWT effective October 1, 2002 (see Note1), the Company and each of the three stockholders of International WholesaleTile, Inc. entered into a repurchase agreement to commence on January 1,2004. The maximum number of redeemable shares under the repurchase agreementwas 450,000. The transaction was accounted for by reducing additional paid incapital to the extent a balance existed with the remaining portion of thetransaction applied to accumulated deficit as of December 31, 2003.  During the year ended December 31, 2003the repurchase agreement was cancelled. The transaction was accounted for byincreasing additional paid in capital to the extent it was reduced in the prioryear with the remaining portion decreasing the accumulated deficit. Other thanthe financial statements and related notes, and Management’s Discussion andAnalysis set forth in Item 2 of this periodic report, which takes into accountthe effect of the restatement, all other information is described in Amendment No. 1to the 10-Q/a for the quarter ended March 31, 2004, filed with theSecurities and Exchange Commission on September 23, 2004.

 

PART I

 

ITEM 1:                                                     FINANCIALSTATEMENTS

 

**IWTTESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDFINANCIAL STATEMENTS**

**(UNAUDITED)**

**THREEMONTHS ENDED MARCH 31, 2004**

 

**TABLE OFCONTENTS**

 
| Report  of Independent Registered Public Accounting Firm                                                                                |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                    |   |
| **Consolidated  Balance Sheets March 31, 2004 (as restated) (unaudited) and  December 31, 2003 (as restated)**           |   |
|                                                                                                                                    |   |
| Consolidated  Statements of Operations for the Three Months Ended March 31, 2004 and  2003 (as restated) (unaudited)               |   |
|                                                                                                                                    |   |
| Consolidated  Statements of Stockholders’ Equity for the Three Months ended March 31,  2004 and 2003(as restated) (unaudited) |   |
|                                                                                                                                    |   |
| Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2004 and  2003 (as restated) (unaudited)               |   |
|                                                                                                                                    |   |
| Notes  to Consolidated Financial Statements (unaudited)                                                                                 |   |

 

1

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***Kantor,Sewell & Oppenheimer, PA***

 

*Certified Public Accountants andAssociates*

7705 Davie Road Extension

Hollywood, Florida 33024

(954) 432-3100  (305)620-0616  (954) 436-6898 Fax

 

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the Board of Directors

IWT Tesoro Corporation and Subsidiaries

Westport, CT

 

We have reviewed the changes made to accompanying consolidated balancesheet of IWT Tesoro Corporation and its wholly-owned Subsidiaries as of March 31,2004, and the related consolidated statements of operations, stockholders’equity, and cash flows for the three-month periods ended March 31, 2004and 2003.  These revised interim financial statements are theresponsibility of the Company’s management.

 

We conducted our review of the changes made in accordance with the standardsof the Public Company Accounting Oversight Board (United States).  A review of interim financial informationconsists principally of applying analytical procedures to financial data andmaking inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than anaudit conducted in accordance with the standards of the Public CompanyAccounting Oversight Board, the objective of which is the expression of anopinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our review, we are not aware of any material modificationsthat should be made to the accompanying interim financial statements for themto be in conformity with U.S. generally accepted accounting principles.

 

 
| /s/ KANTOR, SEWELL & OPPENHEIMER, PA                           |   |
|-------------------------------------------------------------------------|--------|
|                                                                    |
| Hollywood, Florida                                                      |
| April 27, 2004, except for Note 10 which is  dated August 31, 2005 |

 

 

Member of the AmericanInstitute of Certified Public Accountants

Member of the Center forPublic Company Audit Firms

Member of the FloridaInstitute of Certified Public Accountants

 

2

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                        | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                        | ** ** | **2004**           | ** ** | **2003**              | ** ** |
| ** **                                                                                                        | ** ** | **(Restated)**     | ** ** | **(Restated)**        | ** ** |
| ASSETS                                                                                                            |       |               |       |                  |       |
| Current Assets:                                                                                                   |       |               |       |                  |       |
| Cash                                                                                                              |       | $                  | 609,682    |                  | $          | 867,361 |   |
| Accounts  receivable, net allowance for doubtful accounts and returns                                             |       | 5,679,421          |       | 4,852,705             |       |
| Inventories                                                                                                       |       | 14,279,540         |       | 13,058,839            |       |
| Prepaid expenses                                                                                                  |       | 681,426            |       | 754,281               |       |
| Note receivable  arising from sale of stock                                                                       |       | —             |       | 550,000               |       |
| Deposits on  inventories                                                                                          |       | 550,000            |       |                  |       |
| Total current  assets                                                                                             |       | 21,800,069         |       | 20,083,186            |       |
|                                                                                                              |       |               |       |                  |       |
| Property and  equipment, net                                                                                      |       | 1,218,630          |       | 1,236,979             |       |
|                                                                                                              |       |               |       |                  |       |
| Other assets                                                                                                      |       | 440,456            |       | 382,101               |       |
|                                                                                                              |       | $                  | 23,459,155 |                  | $          | 21,702,266 |   |
|                                                                                                              |       |               |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                         |       |               |       |                  |       |
|                                                                                                              |       |               |       |                  |       |
| Current  Liabilities:                                                                                             |       |               |       |                  |       |
| Accounts payable                                                                                                  |       | $                  | 11,453,496 |                  | $          | 9,859,161 |   |
| Accrued expenses                                                                                                  |       | 575,762            |       | 536,963               |       |
| Current portion  of capital lease obligations                                                                     |       | 49,065             |       | 63,152                |       |
| Current portion  of notes payable, other                                                                          |       | 38,512             |       | 42,719                |       |
| Total current  liabilities                                                                                        |       | 12,116,835         |       | 10,501,995            |       |
|                                                                                                              |       |               |       |                  |       |
| Long-Term Debt:                                                                                                   |       |               |       |                  |       |
| Note payable,  revolving line of credit                                                                           |       | 10,170,284         |       | 9,599,340             |       |
| Capital lease  obligations                                                                                        |       | 153,895            |       | 149,183               |       |
| Subordinated  notes payable, stockholders                                                                         |       | 338,662            |       | 338,662               |       |
| Notes payable,  other                                                                                             |       | 36,107             |       | 42,560                |       |
| Total long-term  debt                                                                                             |       | 10,698,948         |       | 10,129,745            |       |
| Total  liabilities                                                                                                |       | 22,815,783         |       | 20,631,740            |       |
|                                                                                                              |       |               |       |                  |       |
| Stockholders’  Equity:                                                                                       |       |               |       |                  |       |
| Preferred stock,  $0.001 par value, 25,000,000 authorized; none issued                                            |       | —             |       | —                |       |
| Common stock,  $0.001 par value, 100 million shares authorized; 11,675,702 and 11,622,702  issued and outstanding |       | 11,676             |       | 11,623                |       |
| Additional paid  in capital                                                                                       |       | 4,097,246          |       | 3,883,949             |       |
| Accumulated  deficit                                                                                              |       | (3,465,550         | )          | (2,825,046            | )          |
|                                                                                                              |       | 643,372            |       | 1,070,526             |       |
|                                                                                                              |       | $                  | 23,459,155 |                  | $          | 21,702,266 |   |

 

See Notes to ConsolidatedInterim Financial Statements.

 

3

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

CONSOLIDATEDSTATEMENTS OF OPERATIONS

 
| ** **                                    | ** ** | **March 31,** | ** ** | **March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                    | ** ** | **2004**           | ** ** | **2003**           | ** ** |
| ** **                                    | ** ** | **(Restated)**     | ** ** | **(Restated)**     | ** ** |
| Revenue                                       |       |               |       |               |       |
|                                          |       |               |       |               |       |
| Sales, net of  discounts and returns          |       | $                  | 9,534,632  |               | $          | 6,713,810 |   |
| Cost of goods  sold                           |       | 5,810,414          |       | 4,079,608          |       |
|                                          |       |               |       |               |       |
| Gross profit                                  |       | 3,724,218          |       | 2,634,202          |       |
|                                          |       |               |       |               |       |
| Expenses                                      |       |               |       |               |       |
| Payroll                                       |       | 1,668,156          |       | 1,177,642          |       |
| Delivery                                      |       | 558,622            |       | 336,045            |       |
| General and  administrative                   |       | 287,623            |       | 210,016            |       |
| Lease expense                                 |       | 362,928            |       | 134,380            |       |
| Depreciation                                  |       | 60,643             |       | 40,550             |       |
| Insurance                                     |       | 160,598            |       | 74,828             |       |
| Repairs and  maintenance                      |       | 100,685            |       | 82,371             |       |
| Sales expenses                                |       | 213,179            |       | 114,868            |       |
| Advertising                                   |       | 642,152            |       | 265,567            |       |
| Professional  fees                            |       | 83,105             |       | 124,843            |       |
| Travel and  entertainment                     |       | 88,607             |       | 54,460             |       |
| Bad debts                                     |       | 22,611             |       | 3,247              |       |
|                                          |       | 4,248,909          |       | 2,618,817          |       |
| Income (Loss)  from operations                |       | (524,691           | )          | 15,385             |       |
|                                          |       |               |       |               |       |
| Other  income/(expenses)                      |       |               |       |               |       |
| Interest expense                              |       | (122,266           | )          | (75,949            | )          |
| Other income                                  |       | 6,453              |       | 835                |       |
| Loss on disposal                              |       | —             |       | (5,352             | )          |
|                                          |       | 115,813            |       | (80,466            | )          |
|                                          |       |               |       |               |       |
| Net loss before  taxes                        |       | (640,504           | )          | (65,081            | )          |
|                                          |       |               |       |               |       |
| Income tax  benefit                           |       | —             |       | 13,093             |       |
|                                          |       |               |       |               |       |
| Net loss                                      |       | $                  | (640,504   | )                  | $          | (51,988 | ) |
|                                          |       |               |       |               |       |
| Loss Per Share:                               |       |               |       |               |       |
| Basic                                         |       | $                  | (0.06      | )                  | $          | (0.00 | ) |
| Diluted                                       |       | $                  | (0.06      | )                  | $          | (0.00 | ) |
|                                          |       |               |       |               |       |
| Weighted Average  Common Shares Outstanding - |       |               |       |               |       |
| Basic                                         |       | 11,634,724         |       | 11,081,516         |       |
| Diluted                                       |       | 11,634,724         |       | 11,081,516         |       |

 

See Notes to ConsolidatedInterim Financial Statements.

 

4

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

 

CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 
| ** **                                                           | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|------------------|------------|-------------|------------|----------------|------------|-----------------|------------|------------|------------|
| ** **                                                           | ** ** | **Common Stock** | ** ** | **Paid in** | ** ** | **Earnings**   | ** ** | ** **      | ** ** |
| ** **                                                           | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Deficit**     | ** ** | **Total**  | ** ** |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Balance, December 31, 2002, as restated                         |       | 10,587,834       |       | $           | 10,588     |           | $          | —          |       | $          | (1,362,532 | ) | $ | (1,351,944 | ) |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Issuance of shares  - private offering                               |       | 236,668          |       | 237         |       | 959,764        |       | —          |       | 960,001    |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Exercise of  warrants                                                |       | 80,000           |       | 80          |       | 239,920        |       | —          |       | 240,000    |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Issuance of  shares to employees and directors for services rendered |       | 18,200           |       | 18          |       | 55,441         |       | —          |       | 55,459     |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Issuance of  shares - public offering                                |       | 250,000          |       | 250         |       | 1,292,250      |       | —          |       | 1,292,500  |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Cancellation of  stock repurchase agreement                          |       | 450,000          |       | 450         |       | 669,907        |       | 402,803         |       | 1,073,160  |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Issuance of  shares officer’s performance based stock options   |       |             |       |        |       | 666,667        |       |            |       | 666,667    |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Net loss, twelve  months ended December 31, 2003                |       | —           |       | —      |       | —         |       | (1,865,317      | )          | (1,865,317 | )          |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Balance,  December 31, 2003, as restated                        |       | 11,622,702       |       | 11,623      |       | 3,883,949      |       | (2,825,046      | )          | 1,070,526  |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Exercise of  warrants                                                |       | 38,000           |       | 38          |       | 123,462        |       |            |       | 123,500    |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Issuance of  shares to employees and directors for services rendered |       | 15,000           |       | 15          |       | 89,835         |       |            |       | 89,850     |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Net loss,three  months ended March 31, 2004                     |       | —           |       | —      |       | —         |       | (640,504        | )          | (640,504   | )          |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
|                                                                 |       | 11,675,702       |       | $           | 11,676     |           | $          | 4,097,246       |       | $          | (3,465,550 | ) | $ | 643,372 |   |

 

See Notes to ConsolidatedInterim Financial Statements.

 

5

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 
| ** **                                                                                 | ** ** | **Three months ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | **March 31,**     | ** ** |
| ** **                                                                                 | ** ** | **2004**               | ** ** | **2003** | ** ** |
| ** **                                                                                 | ** ** | **(Restated)**         | ** ** | **(Restated)** | ** ** |
| Cash flows from  operating activities:                                                     |       |                   |       |   |   |
| Net loss                                                                                   |       | $                      | (640,504   | ) | $ | (51,988 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |       |                   |       |   |   |
| Depreciation and  amortization                                                             |       | 65,658                 |       | 40,550 |   |
| Deferred income  taxes                                                                     |       | —                 |       | (13,094 | ) |
| Common stock  issued for services and compensation                                         |       | 89,850                 |       | 43,360 |   |
| Provision for  doubtful accounts and reserve for returns                                   |       | 44,127                 |       | 24,202 |   |
| (Gain) loss on  disposal of property and equipment                                         |       | —                 |       | 5,352 |   |
| Changes in  operating assets and liabilities:                                              |       |                   |       |   |   |
| (Increase)  Decrease in:                                                                   |       |                   |       |   |   |
| Accounts  receivable                                                                       |       | (870,843               | )          | (635,573 | ) |
| Inventories                                                                                |       | (1,220,701             | )          | (2,448,590 | ) |
| Deposit on  purchase of inventories                                                        |       | (550,000               | )          |   |   |
| Prepaid expenses  and other assets                                                         |       | 17,416                 |       | (158,886 | ) |
| Increase in:                                                                               |       |                   |       |   |   |
| Accounts payable                                                                           |       | 1,594,335              |       | 2,651,145 |   |
| Accrued expenses                                                                           |       | 38,799                 |       | 15,200 |   |
| Net cash used in  operating activities                                                     |       | (1,431,863             | )          | (528,322 | ) |
|                                                                                       |       |                   |       |   |   |
| Cash flows from  investing activities:                                                     |       |                   |       |   |   |
| Acquisitions of  property and equipment                                                    |       | (34,130                | )          | (371,267 | ) |
| Net cash used in  investing activities                                                     |       | (34,130                | )          | (371,267 | ) |
|                                                                                       |       |                   |       |   |   |
| Cash flows from  financing activities:                                                     |       |                   |       |   |   |
| Proceeds from  revolving line of credit                                                    |       | 9,230,000              |       | 6,788,000 |   |
| Payments on  revolving line of credit                                                      |       | (8,659,056             | )          | (6,060,817 | ) |
| Proceeds from  issuance of stock                                                           |       | 123,500                |       | 440,000 |   |
| Collection on  notes receivable arising from sale of stock                                 |       | 550,000                |       | (130,000 | ) |
| Payments on  capital leases and notes payable                                              |       | (26,130                | )          | (22,232 | ) |
| Repayment of  related party loan                                                           |       | —                 |       | (25,050 | ) |
| Loan financing  costs                                                                      |       | (10,000                | )          | — |   |
| Net cash  provided by financing activities                                                 |       | 1,208,314              |       | 989,901 |   |
|                                                                                       |       |                   |       |   |   |
| Net Increase  (Decrease) in Cash                                                           |       | (257,679               | )          | 90,312 |   |
|                                                                                       |       |                   |       |   |   |
| Cash, Beginning                                                                            |       | 867,361                |       | 574,046 |   |
| Cash, Ending                                                                               |       | $                      | 609,682    |   | $ | 664,358 |   |
|                                                                                       |       |                   |       |   |   |
| Cash Paid During  the Period for:                                                          |       |                   |       |   |   |
| Interest expense                                                                           |       | $                      | 122,266    |   | $ | 75,949 |   |
|                                                                                       |       |                   |       |   |   |
| Non-Cash  Investing and Financing Activities:                                              |       |                   |       |   |   |
| Acquisition of  property and equipment financed through long-term debt                     |       | $                      | 6,095      |   | $ | — |   |

 

See Notes to ConsolidatedInterim Financial Statements.

 

6

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**IWTTESORO CORPORATION AND SUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**THREEMONTHS ENDED MARCH 31, 2004**

 

**NOTE 1****   PRINCIPLES OF CONSOLIDATION**

 

The accompanying consolidated financial statements include the accountsof the Company and its wholly owned subsidiaries, International Wholesale Tile, Inc.(IWT), IWT Tesoro International, Inc. (International) and IWT TesoroTransport, Inc. (Transport) (collectively the “Company”).  Allsignificant inter-company balances and transactions have been eliminated.

 

**NOTE 2****   BASIS OF PRESENTATION**

 

The interim financial information included herein is unaudited;however, such information reflects all adjustments which are, in the opinion ofmanagement, necessary for a fair presentation of the Company’s financialposition, results of operations, changes in stockholders’ equity and cash flowsfor the interim periods.  All such adjustments are of a normal, recurringnature.  The results of operations for the first three months of the yearare not necessarily indicative of the results of operations which might beexpected for the entire year.

 

The accompanying consolidated financial statements of the Company havebeen prepared in accordance with the instructions to Form 10-Q and,therefore, omit or condense certain footnotes and other information normallyincluded in financial statements prepared in accordance with generally acceptedaccounting principles.  It is suggested that these condensed financialstatements should be read in conjunction with the Company’s financialstatements and notes thereto included in the Company’s audited financialstatements on Form 10-K for the fiscal year ended December 31, 2003.

 

**NOTE3****                                                    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Stock Options

The Company accounts for stock options under the provisions ofAccounting Principles Board Opinion (APB) No. 25*Accounting For Stock Issued to Employees*and related interpretations.  Accounting for the issuance of stock optionsunder the provisions of APB No. 25 typically does not result incompensation expense for the Company since the exercise price of options isnormally established at the market price of the Company’s common stock on thedate granted.  Statement of Financial Accounting Standards (SFAS) No. 123*Accounting for Stock-Based Compensation*provides that the related expense may be recorded in the basic financialstatements or the pro forma effect on earnings may be disclosed in thefinancial statements.

 

A total of 50,000 options were granted to directors of the Companyduring the three months ended March 31, 2004.  No options weregranted during the three months ended March 31, 2003.

 

7

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The effect on net income (loss) and earnings per share if the Companyhad applied the fair value recognition provision of the SFAS No. 123, consisted of the following:

 
| ** **                                                                                                                    | ** ** | **Three Months Ended  March 31, 2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
|                                                                                                                          |       |                                        |       |
| Net loss as  reported                                                                                                         |       | $                                           | (640,504   | ) |
| Plus total  stock-based compensation cost, net of related tax effects, included in the  determination of net loss as reported |       | —                                      |       |
|                                                                                                                          |       |                                        |       |
| Less stock-based  compensation cost, net of related tax effects, determined under fair value  based method for all awards     |       | (54,563                                     | )          |
|                                                                                                                          |       |                                        |       |
| Pro-forma net  loss                                                                                                           |       | $                                           | (695,067   | ) |
|                                                                                                                          |       |                                        |       |
| Basic earnings  per share                                                                                                     |       |                                        |       |
| As reported                                                                                                                   |       | $                                           | (0.06      | ) |
| Pro-forma                                                                                                                     |       | $                                           | (0.06      | ) |
|                                                                                                                          |       |                                        |       |
| Diluted earnings  per share                                                                                                   |       |                                        |       |
| As reported                                                                                                                   |       | $                                           | (0.06      | ) |
| Pro-forma                                                                                                                     |       | $                                           | (0.06      | ) |

 

For the pro forma net loss calculation in the preceding table, the fairvalue of each option on the date of grant was estimated using the Black-Scholesoption-pricing model and the following assumptions for awards in 2004: dividendyields of .0 percent; expected volatility of 21.51 percent; risk-free interestrates of 2.20 percent; and expected lives of five years.  Using theseassumptions, the weighted average grant-date fair value per share of optionsgranted in 2004 was $1.21.

 

Recent Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board (FASB)issued SFAS No. 148,*Accounting forStock-Based Compensation – Transition and Disclosure,* which providesalternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employeecompensation as prescribed in SFAS No. 123. Additionally, SFAS No. 148requires more prominent and more frequent disclosures in financial statementsabout the effects of stock-based compensation. The provisions of this Statementare effective for fiscal years ending after December 15, 2002. Management does not expect the adoption of this Statement to have a material impacton the Company’s financial condition or results of operations.

 

Earnings per Share

Basic earnings per share are computed based on the weighted averagenumber of common shares outstanding during each year.  Diluted earningsper share are computed based on the weighted average number of common sharesoutstanding plus all potential dilutive common shares outstanding (stockoptions) during each year.

 

8

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**NOTE4****                                                    INVENTORIES**

 

Inventories consisted of the following:

 

| ** **            | ** ** | **March 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------------|------------|--------------------------|------------|-----------------------------|------------|
|                  |       |                     |       |                        |       |
| Tiles                 |       | $                        | 12,088,010 |                        | $          | 11,102,115 |   |
| Inventory in  transit |       | 2,191,530                |       | 1,956,724                   |       |
|                  |       |                     |       |                        |       |
|                  |       | $                        | 14,279,540 |                        | $          | 13,058,839 |   |

 

Inventory in transit consists of merchandise purchased overseas, whichis not yet received in the warehouse.  The Company obtains legal title atthe shipping point.  Inventory cost includes the purchase price andin-bound freight.

 

**NOTE5****                                                    DEPOSITON EXCLUSIVE AGREEMENT**

 

During February 2004, the Company entered into an agreement withan Italian supplier to develop an exclusive line of tile.  The agreementrequired a deposit of $550,000, and the initial shipment is anticipated in July 2004.

 

**NOTE6****                                                    PROPERTY AND EQUIPMENT**

 

Property and equipment consisted of the following:

 

| ** **                     | ** ** | **March 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                     | ** ** | **(as restated)**        | ** ** | **(as restated)**           | ** ** |
|                           |       |                     |       |                        |       |
| Furniture and  fixtures        |       | $                        | 315,566    |                        | $          | 307,247 |   |
| Machinery and  equipment       |       | 479,483                  |       | 477,996                     |       |
| Vehicles                       |       | 222,216                  |       | 211,215                     |       |
| Computer  equipment            |       | 349,149                  |       | 329,747                     |       |
| Leasehold  improvements        |       | 409,125                  |       | 409,125                     |       |
|                           |       |                     |       |                        |       |
|                           |       | 1,775,539                |       | 1,735,330                   |       |
| Less accumulated  depreciation |       | (556,909                 | )          | (498,351                    | )          |
|                           |       |                     |       |                        |       |
|                           |       | $                        | 1,218,630  |                        | $          | 1,236,979 |   |

 

Depreciation expense for the three months ended March 31, 2004 was$60,643 and $40,550, respectively.

 

**NOTE7****                                                    LOANSPAYABLE**

 

The Company has a loan and security agreement with a financialinstitution for a revolving line of credit with a maximum limit of$17,000,000.  The agreement specifies that proceeds from this revolvingcredit loan be used for general working capital needs.  All present andfuture assets of the Company collateralize this loan. The rate of interest ineffect for this agreement is calculated with reference to the Base Rate and/orLIBOR (London Interbank Offered Rate).  The balance due at March 31,2004 and December 31, 2003 was $10,170,284 and $9,599,340, respectively.

 

Base Rate advances bear a fluctuating interest rate per annum equal toprime plus 0.50%.  LIBOR advances bear a fixed rate per annum equal to3.00% plus the LIBOR for the applicable interest period.  At March 31,2004, the Base Rate and the LIBOR rate were 4.50% and 4.13%, respectively.

 

The loan and security agreement contains certain covenants, whichinclude financial covenants that require the Company to maintain a certainleverage ratio, a required minimum fixed charge coverage ratio, and a certaininventory turnover ratio.  At March 31, 2004, the Company is not incompliance with a certain required covenant, as amended and restated in theagreement with the financial institution.  The financial institution hasagreed to waive compliance with this covenant for this quarter.

 

For the three months ended March 31, 2004 and 2003, interestexpense related to the credit lines amounted to $101,829 and $59,151,respectively.

 

9

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**NOTE8****                                                    STOCKHOLDERS’EQUITY**

 

Common Stock

During the three months ended March 31, 2004, the Company issued38,000 shares of common stock pursuant to warrants exercised at $3.25 pershare, for a total of $123,500.

 

On February 17, 2004 the Company issued 15,000 shares of commonstock valued at $5.99 per share, based on the trading price, for a total of$89,850, to a consultant for services rendered resulting in an immediate chargeto operations.

 

In March 2004, the Company received $550,000 as full payment on asubscription receivable outstanding at December 2003.

 

**NOTE9****                                                    SEGMENTINFORMATION**

 

The Company manages its operations as one segment and all revenue isderived from customers in the United States.

 

**NOTE10                                           RESTATEMENT**

 

The Company has restated the consolidated balance sheet as of March 31,2004, and the consolidated statements of operations, stockholders’ equity andcash flows for the three months then ended as described below:

 

***Accounts Receivable***

 

Managementdetermined that the Company had been incorrectly calculating the allowances forproduct returns.  Management revised thiscalculation and determined that net sales were overstated by approximately$22,000 and $21,000 for the period ended March 31, 2004 and 2003,respectively. Accounts receivable was overstated by approximately $77,000 as ofMarch 31, 2004.

 

***Accrued Expenses***

 

Management determined that the Company had been incorrectly calculatingthe accruals for sales commissions and rebates. Management revised thiscalculation and determined that accrued expenses were understated byapproximately $473,000 and $295,000 as of March 31, 2004 and 2003,respectively.

 

***Sample and DisplayBoards***

 

Managementreassessed its methodology for accounting for sample and display boards anddetermined that this promotional merchandise should have been expensed whendistributed rather than capitalized and depreciated. The adjustments resultingfrom the restatement increase net loss by approximately $412,000 for the threemonths ended March 31, 2004 and decrease net income by approximately$148,000 for the three months ended March 31, 2003. This change alsoreduced property and equipment as of March 31, 2004 by approximately$3,392,000.

 

***Deferred Taxes***

 

Inconnection with the restatements for accounts receivable, accrued expenses andsample and display boards described above, the related tax effect was recordedresulting in a net deferred tax asset and the company recorded a valuationallowance, as needed, to reduce net deferred tax asset to an amount consideredby management more likely than not to be realized.

 

***AdditionalPaid In Capital***

 

Aspart of the recapitalization transaction of IWT effective October 1, 2002the Company and each of the three stockholders of International Wholesale Tile, Inc.entered into a repurchase agreement to commence on January 1, 2003. Themaximum number of redeemable shares under the repurchase agreement was 450,000.On June 26, 2003, the Company voted to cancel the repurchase agreement. Thetransaction was accounted for by reducing additional paid in capital to theextent a balance existed with the remaining portion of the transaction appliedto accumulated deficit as of December 31, 2002. As a result of therestatements described above, the recording of the cancellation of therepurchase agreement was also restated based on the restated balance inaccumulated deficit and additional paid in capital.

 

10

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The effects of these changes are summarized as follows:

 
| ** **                    | ** ** | **March 31, 2004**                       | ** ** | **March 31, 2003**                       | ** ** |
|-------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                    | ** ** | **As  Previously  Reported**                  | ** ** | **Adjustments**                               | ** ** | **As  Restated** | ** ** | **As  Previously  Reported** | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| Consolidated  Balance Sheet:  |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Accounts  receivable          |       | $                                             | 5,755,937  |                                          | $          | (76,516 | ) | $ | 5,679,421 |   | $ | 3,507,858 |   | $ | (20,955 | ) | $ | 3,486,903 |   |
| Property and  equipment, net  |       | 4,610,798                                     |       | (3,392,168                                    | )          | 1,218,630 |   | 3,358,786 |   | (2,370,646 | ) | 988,140 |   |
| Deferred tax  assets          |       | 127,876                                       |       | (127,876                                      | )          | — |   | 2,480 |   | 607,810 |   | 610,290 |   |
| Accrued expenses              |       | 102,362                                       |       | 473,400                                       |       | 575,762 |   | 410,467 |   | 294,853 |   | 705,320 |   |
| Deferred tax  liability       |       | 149,072                                       |       | (149,072                                      | )          | — |   | — |   | — |   | — |   |
| Additional paid  in capital   |       | 5,186,117                                     |       | (1,088,871                                    | )          | 4,097,246 |   | 1,169,266 |   | (686,068 | ) | 483,198 |   |
| Accumulated  deficit          |       | $                                             | (633,532   | )                                             | $          | (2,832,018 | ) | $ | (3,465,550 | ) | $ | (21,944 | ) | $ | (1,392,576 | ) | $ | (1,414,520 | ) |
|                          |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| ** **                    | ** ** | **For the Quarter Ended March 31, 2004** | ** ** | **For the Quarter Ended March 31, 2003** | ** ** |
| ** **                    | ** ** | **As  Previously  Reported**                  | ** ** | **Adjustments**                               | ** ** | **As  Restated** | ** ** | **As  Previously  Reported** | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| Consolidated  Statement of    |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Operations:                   |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Net Sales                     |       | $                                             | 9,556,147  |                                          | $          | (21,515 | ) | $ | 9,534,632 |   | $ | 6,734,765 |   | $ | (20,955 | ) | $ | 6,713,810 |   |
| Gross profit                  |       | 3,745,733                                     |       | (21,515                                       | )          | 3,724,218 |   | 2,655,157 |   | (20,955 | ) | 2,634,202 |   |
| Operating  expenses           |       | 3,763,306                                     |       | 485,603                                       |       | 4,248,909 |   | 2,380,026 |   | 238,791 |   | 2,618,817 |   |
|                          |       |                                          |       |                                          |       | — |   |   |   |   |   | — |   |
| Loss before  income taxes     |       | (133,386                                      | )          | (507,118                                      | )          | (640,504 | ) | 194,665 |   | (259,746 | ) | (65,081 | ) |
| Income tax  benefit (expense) |       | (120,000                                      | )          | 120,000                                       |       | — |   | (31,869 | ) | 44,962 |   | 13,093 |   |
| Net loss                      |       | $                                             | (253,386   | )                                             | $          | (387,118 | ) | $ | (640,504 | ) | $ | 162,796 |   | $ | (214,784 | ) | $ | (51,988 | ) |
|                          |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Loss per share:               |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Basic &  diluted     |       | $                                             | (0.02      | )                                             | $          | 0.04 |   | $ | (0.06 | ) | $ | 0.01 |   | $ | (0.01 | ) | $ | (0.00 | ) |

 

11

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

The following discussion should be read along with our financialstatements, which are included in another section of this filing.

 

*Forward Looking Statements*

 

Some of the statements made constitute “forward-looking statements”.For example, statements included in this prospectus regarding our financialposition, business strategy and other plans and objectives for future operations,and assumptions and predictions about future demand for our services andproducts, supply, costs, marketing and pricing factors are all forward-lookingstatements. When we use words like “intend,” “anticipate,” “believe,” “estimate,”“plan” or “expect,” we are making forward- looking statements.  Theseforward-looking statements are subject to risks and uncertainties and otherfactors that may cause our actual results, performance or achievements to bematerially different from the results, performance or achievements expressed orimplied by the forward-looking statements. You should not unduly rely on thesestatements. Forward-looking statements involve assumptions and describe ourplans, strategies, and expectations. This report contains forward-lookingstatements that address, among other things,

 

•  our business andfinancing plans;

•  regulatoryenvironments in which we operate or plan to operate; and

•  trends affecting ourfinancial condition or results of operations, the impact of competition, thestart-up of certain operations, roll out of products and services andacquisition opportunities.

 

Factors, risks, and uncertainties that could cause actual results todiffer materially from those in the forward-looking statements (CautionaryStatements) include, among others,

 

•  ourability to raise capital;

•  our ability to continuedistributing our products;

•  our ability to provideour products at competitive rates;

•  our ability to executeour business strategy in a competitive environment;

•  our degree of financialleverage;

•  regulatoryconsiderations and risks related to international economics,

•  risks related to marketacceptance and demand for our products and services;

•  our dependence on thirdparty suppliers;

•  the impact of competitiveservices; and

•  other risks referencedfrom time to time in our SEC filings.

 

We believe that the assumptions and expectations reflected in this prospectus are reasonable, based on informationavailable to us in this report.  However, we cannot assure anyone thatthese assumptions and expectations will prove to have been correct or that wewill take any action that we may presently be planning. We assume no obligationto update forward-looking statements or reflect unanticipated future events.

 

**General**

 

We were incorporated on May 5, 2000 as a Nevada corporation. Our principal office is located at 191 Post Road West, Suite 10, Westport,CT 06880.  Any reference in this “Management’s Discussion and Analysis orPlan of Operations” discussion to “the company”, “our”, “we” or “us” refers toTesoro.

 

Effective October 1, 2002, we acquired International WholesaleTile, Inc. (IWT) through a share exchange and IWT became our wholly ownedsubsidiary.  We issued nine million shares of our common stock in exchangefor all of the IWT shares.  The company has three additional wholly ownedsubsidiaries, two of which were created in 2004.  The first is IWT TesoroInternational, Ltd.  The second is IWT Transport, Inc.  “International”was created to own and manage assets relating to any of the Company’s overseasactivities.  “Transport” was created to handle the domestic freightoperations of the Company.  Subsequent to the fiscal quarter ended March 31,2004, we organized The Tile Club, Inc. (TCI).  TCI will license thedistribution rights to designer and artistic based decorative wall tiles.

 

12

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**Company Overview**

 

The Company is a value added distributor of imported ceramic, porcelainand stone flooring and decorative wall tile.  Our warehousing anddistribution center contains over 220,000 square feet of storage space and overseven million square feet of product ready for immediate shipment to ourcustomers.  The company’s primary strategy is to be a reliable supplier nota competitor to its customers.

 

Management believes that the critical success factors to the Company’sbusiness are its ability to:

 

•      Maintain relationships with and serve agrowing base of independent dealers, distributors and wholesalers by providing adequatestocks of in demand product at reasonable and competitive prices

•      Stay ahead of the trends in color, textureand format the drive demand for our fashion based products

•      Make the correct investments in productinventories, relationships with suppliers and logistics support services toensure our continuing capability to meet our customer’s expectations

 

Our primary source of revenue is the sale of hard flooring and wallcovering materials and our primary costs relate to the acquisition, sales and deliveryof those products.  While sales are made throughout the United States, todate the majority of our sales are in the southeastern quadrant of thecountry.  The primary sources of working capital are a $ 17 million (US)revolving line of credit from a division of a large US commercial bank, oursuppliers who extend us terms and our stockholders equity.

 

On December 17, 2003 we began trading our stock on the OTCBB underthe symbol IWTT.  During 2004, we expect to raise additional equitythrough the public market.  Any new equity raised will be used tostrengthen our balance sheet and to provide capital for continued growth.

 

During the quarter ended March 31, 2004, the Company began toexpand its distribution channels beyond its traditional small and mid sizedfloor covering dealers in the southeastern United States. These new channelsincluded larger regional distributors outside the southeastern United States,home center stores and floor-covering dealers that focus on the builders of newconstruction units.

 

**QuarterEnded March 31,**

 
| ** **          | ** ** | **2002**  | ** ** | **2003**  | ** ** | **2004**  | ** ** |
|---------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Revenues            |       | $         | 6,014,020  |      | $          | 6,713,810 |       | $ | 9,534,632 |   |
| Cost of Goods  Sold |       | 3,612,316 |       | 4,079,608 |       | 5,810,414 |       |
| Gross Margin        |       | 2,401,704 |       | 2,634,202 |       | 3,724,218 |       |
| Operating  Expenses |       | 1,652,009 |       | 2,618,817 |       | 4,248,909 |       |
|                     |            |           |            |           |            |           |            |  |  |  |

 

March 31, 2004 compared to March 31, 2003

 

Sales for the quarter ended March 31, 2004 were $ 9,534,632 a 42%increase over sales for the quarter ended March 31, 2003.  Thisgrowth follows a 12% growth from March 31, 2002 to March 31, 2003. The primary cause of the significant growth in sales is the startup of oursales channel for larger regional distributors.

 

We believe that as a relatively small player in a growing market, wecan sustain growth rates in excess of 20% for the next several years.  Thetile market in the United States is approximately $2.3 billion at the wholesalelevel and is growing at a seven to ten percent rate.  Our share of thismarket is approximately 1.5%.

 

We purchase product from suppliers around the world.  This allowsus to maintain a consistent mix of price and consequently our cost of goodssold have remained stable at 60% for the periods ended March 31 2002, 2003and 2004.

 

Our loss before taxes for the quarter ended March 31 fell from $ 65,081in 2003 to 640,504 in 2004.  The primary cause for the reduction inpre-tax earnings is the planned expansion of our sales and marketing efforts,including staff, in advance of opening new markets and channels ofdistribution.  Our sales growth in the quarter ended March 31, 2004over the same period in 2003 is a result of these investments beginning to haveimpact.

 

We currently operate from a warehouse facility of nearly 147,000 squarefeet.  We also use local satellite warehouse facilities accounting for anadditional 80,000 square feet to accommodate overflow stock.  During thequarter ended March 31, 2004, we

 

13

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contracted to build a newwarehouse next to the main facility and to expand the office space in the mainfacility from five to ten thousand square feet.  This new facility,scheduled for completion in the forth quarter of 2004, will allow us toconsolidate our overflow stock and to continue our growth plan.  Wecurrently maintain between six and seven million square feet of product in ourfacilities with an additional one to two million square feet in-transit (on theocean) or on location at foreign factories.

 

Inventory was $ 14,279,540 at March 31, 2004 compared to $8,496,466 at March 31, 2003.  The company turned its inventory 1.62times during the quarter ended March 31, 2004 compared to 1.92 timesduring the quarter ended March 31, 2003.  The company targets 1.5 to2.0 turns as a measure of its ability to meet the needs of its customers.

 

**Liquidity and Capital Resources**

 

During the first quarter ended March 31, 2004, Tesoro issued38,000 shares of common stock in connection with warrants exercised at $3.25per share for a total of $123,500.  The purchasers were accreditedinvestors, were provided with or had access to, information about the Company,including financial information.  The transaction was exempt pursuant to Section 4(2) ofthe Securities Act.

 

On February 17, 2004, Tesoro issued 15,000 shares of common stockvalued at $5.99 per share, based on the trading price of the shares on the dateissued, for a total of $89,850 to a consultant.

 

In March 2004, we received 550,000 as full payment on asubscription receivable outstanding at December 31, 2003.

 

The balance due at March 31, 2004 was approximately $10.2million.  The loan and security agreement contains certain covenants,which include financial covenants that require us to maintain a certainleverage ratio, a required minimum fixed charge coverage ration, and a certaininventory turnover ratio.  At March 31, 2004, we are not incompliance with a certain required covenant, as amended and restated in theagreement with the financial institution.  The financial institution hasagreed to waive compliance for this quarter.

 

**Critical Accounting Policies**

 

Please refer to the Notes to the Financial Statements regarding Tesoro’sForm 10-KSB for the fiscal year ended December 31, 2004 and filedwith the Securities and Exchange Commission on March 30, 2004.

 

**Segment Information**

 

We manage our operations in one segment and all revenue is derived fromcustomers in the United States.

 

**ITEM 3 –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**

 

**Quantitative and QualitativeDisclosures About Market Risk**

 

The Company is exposed to market risk from changes in interest ratesand foreign currency exchange rates since it funds its operations throughshort-term investments and has business transactions in Euros. A summary of theCompany’s market risk exposures is presented below.

 

*Interest Rate Risk*

 

Tesoro has fixed income investments consisting of cash equivalents andshort-term investments, which may be affected by changes in market interestrates. The Company does not use derivative financial instruments in itsinvestment portfolio. The Company places its cash equivalents and short-terminvestments with high-quality financial institutions, limits the amount ofcredit exposure to any one institution and has established investmentguidelines relative to diversification and maturities designed to maintain safetyand liquidity. Investments are reported at amortized cost, which approximatesfair value.

 

*Foreign Currency Risk*

 

We currently purchase our products from foreign manufacturers in U.S.dollars.  Our fund transfers are relatively large.  The Office of theComptroller of the Currency (USOCC) monitors these activities.  Should theEURO continue to strengthen against the US dollar, we could see an increase inour cost of product that could, in time, to pass on to our

 

14

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customers and therefore have adetrimental impact on our profitability.  Our competitors rely as heavilyon imported product as we do.  Therefore, we do not see any change in thecompetitive landscape for ceramic tile as a result of the strength of theEURO.  Tesoro does not currently hedge against the risk of exchange ratefluctuations.

 

**ITEM 4 –CONTROLS AND PROCEDURES**

 

*Disclosure Controls and Procedures*

 

(a)           Within the 90 daysprior to the date of this report, we carried out an evaluation, under thesupervision and with the participation of management, including our principalexecutive officer and principal financial officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures pursuant toExchange Act Rule 13a-14.  Based upon this evaluation, our principalexecutive officer and principal financial officer concluded that our disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to us (including our consolidated subsidiaries) that isrequired to be included in our periodic SEC reports.

 

(b)           There have been nosignificant changes in our internal controls or in other factors that couldsignificantly affect these controls subsequent to the date of the evaluation describedin the preceding paragraph.

 

15

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**PART II**

 

** ITEM 1:****                LEGAL PROCEDURINGS**

 

We are not a party to any material pending legal proceedings and, tothe best of our knowledge; no such action by or against us is contemplated,threatened or expected.

 

** ITEM 2:****                CHANGES IN SECURITIES,USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES.**

 

During the first quarter ended March 31, 2004, Tesoro issued38,000 shares of common stock in connection with warrants exercised at $3.25per share for a total of $123,500.  The purchasers were accreditedinvestors, were provided with or had access to, information about the Company,including financial information.  The transaction was exempt pursuant to Section 4(2) ofthe Securities Act.

 

On February 17, 2004, Tesoro issued 15,000 shares of common stockvalued at $5.99 per share, based on the trading price of the shares on the dateissued, for a total of $89,850 to a consultant.

 

** ITEM 3:****                DEFAULT UPON SENIOR SECURITIES.**

 

Not applicable

 

** ITEM 4:****                SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

Not applicable

 

** ITEM 5:****                OTHER INFORMATION**

 

Not applicable

 

** ITEM 6:****                EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)           Exhibits

 
| **EXHIBIT  NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                         |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1                 |       | Form of Selected Dealers Agreement (filed as an  Exhibit to the Company’s Registration Statement, filed with the  Securities and Exchange Commission on June 4, 2003)                                               |
| 1.2                 |       | Selected Exclusive Dealers Agreement dated  November 22, 2003 (filed as an Exhibit to the Company’s Report on  Form 8-K, filed with the Securities and Exchange Commission on  September 24, 2003)             |
| 3.1                 |       | Articles of Incorporation (filed as an  Exhibit to the Company’s Form 10-SB, filed with the Securities and  Exchange Commission on August 7, 2000)                                                                  |
| 3.1.1               |       | Articles of Amendment to Articles of Incorporation  dated September 23, 2002 (filed as an Exhibit to the Company’s  Report on Form 8-K, filed with the Securities and Exchange Commission on  October 1, 2002) |
| 3.2.1               |       | Bylaws (filed as an Exhibit to the Company’s  Form 10-SB, filed with the Securities and Exchange Commission on  August 7, 2000)                                                                                     |
| 3.2.2               |       | Amended and Restated Bylaws (filed as an  Exhibit to the Company’s Report on Form 8-K, filed with the  Securities and Exchange Commission on February 4, 2003)                                                      |
| 3.3.1               |       | Specimen Stock Certificate (filed as an  Exhibit to the Company’s Form 10-SB, filed with the Securities and  Exchange Commission on August 7, 2000)                                                                 |
| 3.3.2               |       | Audit Committee Charter (filed as an Exhibit to  the Company’s Report on Form 8-K, filed with the Securities and Exchange  Commission on February 4, 2003)                                                          |
| 3.3.3               |       | Compensation Committee Charter (filed as an  Exhibit to the Company’s Report on Form 8-K, filed with the                                                                                                                 |

 

16

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|   |   | Securities and Exchange Commission on  February 4, 2003)                                                                                                                                                                                                                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.3.4  |   | Nominating And Governing Committee Charter (filed as  an Exhibit to the Company’s Report on Form 8-K, filed with the  Securities and Exchange Commission on February 4, 2003)                                                                                            |
| 3.4.1  |   | Code of Ethics for Senior Financial Officers (filed  as an Exhibit to the Company’s Registration Statement, filed with the  Securities and Exchange Commission on April 11, 2003)                                                                                             |
| 4.1.1  |   | Form of Warrant Agreement (filed as an  Exhibit to the Company’s Registration Statement, filed with the  Securities and Exchange Commission on April 11, 2003)                                                                                                           |
| 4.1.2  |   | Form of Stock Certificate (filed as an  Exhibit to the Company’s Registration Statement, filed with the  Securities and Exchange Commission on April 11, 2003)                                                                                                           |
| 4.1.3  |   | Form of Lock-Up Agreement (filed as an  Exhibit to the Company’s Registration Statement, filed with the  Securities and Exchange Commission on April 11, 2003)                                                                                                           |
| 10.1   |   | Agreement With Peter Goss (filed as an  Exhibit to the Company’s Form 10-SB, filed with the Securities and  Exchange Commission on August 7, 2000)                                                                                                                       |
| 10.2   |   | Stockholders Agreement (filed as an Exhibit to  the Company’s Form 10-SB, filed with the Securities and Exchange  Commission on August 7, 2000)                                                                                                                          |
| 10.3   |   | 2001 Ponca Acquisition Corporation Stock Incentive  Plan. (filed as an Exhibit to the Company’s Report on Form 8-K, filed  with the Securities and Exchange Commission on September 11, 2002)                                                                            |
| 10.4   |   | Employment Agreement Between Ponca Acquisition  Corporation And Henry Jr. Boucher, Jr. Dated As Of December 29,  2002 (filed as an Exhibit to the Company’s Report on Form 8-K, filed  with the Securities and Exchange Commission on September 11, 2002)      |
| 10.5   |   | Memorandum Of Understanding Between Ponca  Acquisition Corporation And The Stockholders Of International Wholesale  Tile, Inc. (filed as an Exhibit to the Company’s Report on  Form 8-K, filed with the Securities and Exchange Commission on  September 11, 2002) |
| 10.6   |   | Stock Purchase Agreement Among The Stockholders Of  International Wholesale Tile, Inc., and                                                                                                                                                                                             |

 

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|   |   | IWT Tesoro Corporation, Effective October 1,  2002 (filed as an Exhibit on Form 8-K, filed with the Securities  and Exhibit Commission on October 15, 2002).                                                                                                                                                                                                                                              |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.7   |   | Termination Of Stockholders Agreement (filed as an Exhibit to  the Company’s Report on Form 8-K/A, filed with the Securities and  Exchange Commission on February 4, 2003)                                                                                                                                                                                                                                     |
| 10.8   |   | Repurchase Agreement (filed as an Exhibit to  the Company’s Report on Form 8-K/A, filed with the Securities and  Exchange Commission on February 4, 2003)                                                                                                                                                                                                                                                      |
| 10.9   |   | Form of Indemnity Agreement (filed as an Exhibit to  the Company’s Registration Statement, filed with the Securities and Exchange  Commission on April 11, 2003)                                                                                                                                                                                                                                               |
| 10.00  |   | Employment Agreement between International Wholesale  Tile, Inc. and Forrest P. Jordan (exhibits omitted) (filed as an Exhibit to  the Company’s Registration Statement, filed with the Securities and Exchange  Commission on May 21, 2003)                                                                                                                                                                   |
| 10.11  |   | Employment Agreement between International Wholesale  Tile, Inc. and Paul F. Boucher (this document is omitted as it is  substantially similar to Forrest P. Jordan’s Employment Agreement with the  exception of the employee’s name and address)                                                                                                                                                                  |
| 10.12  |   | Employment Agreement between International Wholesale  Tile, Inc. and Grey Perna (this document is omitted as it is  substantially similar to Forrest P. Jordan’s Employment Agreement with the  exception of the employee’s name and address)                                                                                                                                                                       |
| 10.13  |   | Subordination Agreement between Congress  Financial Corporation (Florida). and Forrest P. Jordan (filed as an Exhibit to  the Company’s Registration Statement, filed with the Securities and Exchange  Commission on May 21, 2003)                                                                                                                                                                                 |
| 10.14  |   | Subordination Agreement between Congress  Financial Corporation (Florida). and Paul F. Boucher (this document is  omitted as it is substantially similar to Forrest P. Jordan’s Subordination  Agreement with the exception of the employee’s name and address)                                                                                                                                                          |
| 10.15  |   | Subordination Agreement between Congress  Financial Corporation (Florida). and Grey Perna (this document is omitted as  it is substantially similar to Forrest P. Jordan’s Subordination Agreement  with the exception of the employee’s name and address)                                                                                                                                                               |
| 10.16  |   | Termination of Repurchase Agreement dated June 26,  2003 between IWT Tesoro Corporation and Forrest P. Jordan (filed as an Exhibit to  the Company’s Form 8-K, filed with the Securities and Exchange  Commission on June 26, 2003).                                                                                                                                                                      |
| 10.17  |   | Termination of Repurchase Agreement dated June 26,  2003 between IWT Tesoro Corporation and Paul F. Boucher (this document is  omitted as it is substantially similar to Forrest P. Jordan’s Termination of  Repurchase Agreement with the exception of the name and address) (filed as an  Exhibit to the Company’s Form 8-K, filed with the Securities and  Exchange Commission on June 26, 2003). |
| 10.18  |   | Termination of Repurchase Agreement dated June 26,  2003 between IWT Tesoro Corporation and Grey Perna (this document is omitted  as it is substantially similar to Forrest P. Jordan’s Termination of  Repurchase Agreement with the exception of the name and address) (filed as an  Exhibit to the Company’s Form 8-K, filed with the Securities and  Exchange Commission on June 26, 2003).      |
| 16.2   |   | Letter regarding change in Certifying Accountants  (filed as an Exhibit to the Company’s Report on Form 8-K/A filed  with the Securities and Exchange Commission on March 2, 2004).                                                                                                                                                                                                                            |
| 21.    |   | Subsidiaries of Registrant (filed as an Exhibit to  the Company’s Registration Statement, filed with the Securities and Exchange  Commission on April 11, 2003)                                                                                                                                                                                                                                                     |
| 31.1   |   | Certification of Henry J. Boucher, Jr., Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.*                                                                                                                                                                                                                                                                                                     |
| 31.2   |   | Certification of Forrest P. Jordan, Chief Financial  Officer pursuant to Section 302 of the Sarbanes-Oxley Act.*                                                                                                                                                                                                                                                                                                              |
| 32.1   |   | Certification of Henry J. Boucher, Jr., Chief  Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.*                                                                                                                                                                                                                                                                                                     |
| 32.2   |   | Certification of Forrest P. Jordan, Chief Financial  Officer pursuant to Section 906 of the Sarbanes-Oxley Act.*                                                                                                                                                                                                                                                                                                              |
| 99.1   |   | MRS’ Letter To The Securities And Exchange  Commission. (filed as an Exhibit to the Company’s Report on Form 8-K/A,  filed with the Securities and Exchange Commission on October 8, 2002)                                                                                                                                                                                                                |
| 99.2   |   | Letter from Peter Goss regarding fiscal year end  (filed as an Exhibit to the Company’s Report on Form 8-K, filed  with the Securities and Exchange Commission on October 15, 2002)                                                                                                                                                                                                                            |

 

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*              Filed herewith.

 

(b)           Reports on Form 8-K

 

Form 8-K/A, filed on March 2, 2004, regarding change ofaccountants and filing of accountant letter..

 

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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 theundersigned thereunto duly authorized.

 

 
|                   | IWT TESORO CORPORATION                     |
|------------------------|--------------------------------------------|
|                   |                                       |
|                   |                                       |
| September 2, 2005 | /s/ Henry J. Boucher, Jr.             |   |
|                   | Henry J. Boucher, Jr., President      |
|                   |                                       |
| September 2, 2005 | /s/ Forrest P. Jordan                      |   |
|                   | Forrest P. Jordan, Chief Financial Officer |

 

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