**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

----

 

**FORM 10-QSB/A**

 

**(MarkOne)**
| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|------------|------------|---------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                    |
| ** ** | ** ** | **For  the quarterly period ended September 30, 2003**                                             |
|       |       |                                                                                                    |
| **o**      | ** ** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**                          |

 

**CommissionFile No. 0-31267**

 

**IWTTESORO CORPORATION**

(Exact Name ofSmall Business Issuer in Its Charter)

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

 

**101Post Road West, Suite 10, Westport, CT 06880**

(Address ofprincipal executive offices)

 

**(203)221-2770**

(Issuer’sTelephone Number, including area code)

 

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

 

Securities registeredpursuant to Section 12(b) of the Exchange Act: **NONE**

 

Securities registeredpursuant to Section 12(g) of the Exchange Act:**Common Stock, $.001 Per Share**

 

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

 

ý Yes                oNo

 

State the number ofshares outstanding of each of the issuer’s class of common equity, as of November 4,2003:  11,225,541 shares

 

Transitional SmallBusiness Disclosure Format: oYes          ýNo

 

 

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EXPLANATORY NOTE

 

Tesoro has restated theconsolidated balance sheets as of September 30, 2003 and December 31,2002, and the consolidated statements of operations, stockholders’ equity andcash flows for the nine month ended September 30, 2003 and 2002,respectively.  In particular, Managementdetermined that Tesoro had been incorrectly calculation the accruals for salescommissions. Management revised this calculation and determined that accruedexpenses were understated by approximately $271,000 as of September 30,2003.  Additionally, 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 decreased net income by approximately $149,000 for thethree months ended September 30, 2003 and $518,000 for the nine monthsended September 30, 2003. This change also reduced property and equipment as ofSeptember 30, 2003 by approximately $2,714,000.  In connection with the restatements foraccrued expenses and sample and display boards described above, the related taxeffect was recorded resulting in a gross deferred tax asset for the three monthsended September 30, 2003 of approximately $694,000.  Finally, as part of the recapitalizationtransaction of IWT effective October 1, 2002, the Company and each of thethree stockholders of International Wholesale Tile, Inc. entered into arepurchase agreement to commence on January 1, 2003. The maximum number ofredeemable shares under the repurchase agreement was 450,000. The transactionwas accounted for by reducing additional paid in capital to the extent abalance existed with the remaining portion of the transaction applied to accumulateddeficit as of December 31, 2002. During the three months ended September 30, 2003 the repurchaseagreement was cancelled. The transaction was accounted for by increasingadditional paid in capital to the extent it was reduced in the prior year withthe remaining portion decreasing the accumulated deficit.

 

ITEM 1:         Financial Statement

 

**IWTTESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDFINANCIAL STATEMENTS**

**(UNAUDITED)**

**NINEMONTHS ENDED SEPTEMBER 30, 2003**

 

**TABLEOF CONTENTS**

 
| Consolidated Balance Sheets (as  Restated) (Unaudited)                                     | 2      |
|--------------------------------------------------------------------------------------------|--------|
|                                                                                       |   |
| Consolidated Statements of  Operations (as Restated) (Unaudited)                           | 3      |
|                                                                                       |   |
| Consolidated Statements of  Changes in Stockholders’ Equity (as Restated) (Unaudited) | 4-5    |
|                                                                                       |   |
| Consolidated Statements of  Cash Flows (as Restated) (Unaudited)                           | 6      |
|                                                                                       |   |
| Notes to Consolidated  Financial Statements                                                | 7-17   |

 

1

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                        | ** ** | **September 30,  2003** | ** ** | **December 31,  2002** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                        | ** ** | **(Restated)**               | ** ** | **(Restated)**              | ** ** |
| ** **                                                                                                        | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
| ASSETS                                                                                                            |       |                         |       |                        |       |
| Current Assets:                                                                                                   |       |                         |       |                        |       |
| Cash                                                                                                              |       | $                            | 647,634    |                        | $          | 574,046 |   |
| Accounts  receivable, net allowance for doubtful accounts and returns                                             |       | 5,161,978                    |       | 2,875,532                   |       |
| Inventories                                                                                                       |       | 12,160,220                   |       | 6,047,876                   |       |
| Prepaid expenses                                                                                                  |       | 576,128                      |       | 286,820                     |       |
| Deferred tax  asset                                                                                               |       | 694,320                      |       | 597,196                     |       |
| Total current  assets                                                                                             |       | 19,240,280                   |       | 10,381,470                  |       |
|                                                                                                              |       |                         |       |                        |       |
| Property and  equipment, net                                                                                      |       | 1,295,598                    |       | 489,502                     |       |
|                                                                                                              |       |                         |       |                        |       |
| Other assets                                                                                                      |       | 338,458                      |       | 191,725                     |       |
|                                                                                                              |       | $                            | 20,874,336 |                        | $          | 11,062,697 |   |
|                                                                                                              |       |                         |       |                        |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                         |       |                         |       |                        |       |
|                                                                                                              |       |                         |       |                        |       |
| Current  Liabilities:                                                                                             |       |                         |       |                        |       |
| Accounts payable                                                                                                  |       | $                            | 11,256,466 |                        | $          | 5,403,816 |   |
| Accrued expenses                                                                                                  |       | 694,808                      |       | 330,140                     |       |
| Other  liabilities                                                                                                |       | 160,161                      |       | 24,723                      |       |
| Current portion  of capital lease obligations                                                                     |       | 62,644                       |       | 47,222                      |       |
| Current portion  of notes payable, other                                                                          |       | 59,227                       |       | 48,780                      |       |
| Total current  liabilities                                                                                        |       | 12,233,306                   |       | 5,854,681                   |       |
|                                                                                                              |       |                         |       |                        |       |
| Long-Term Debt:                                                                                                   |       |                         |       |                        |       |
| Note payable,  revolving line of credit                                                                           |       | 7,583,869                    |       | 4,864,778                   |       |
| Capital lease  obligations                                                                                        |       | 165,877                      |       | 108,438                     |       |
| Subordinated  notes payable, stockholders                                                                         |       | 338,662                      |       | 448,712                     |       |
| Notes payable,  other                                                                                             |       | 52,878                       |       | 64,872                      |       |
| Total long-term  debt                                                                                             |       | 8,141,286                    |       | 5,486,800                   |       |
| Total  liabilities                                                                                                |       | 20,374,592                   |       | 11,341,481                  |       |
|                                                                                                              |       |                         |       |                        |       |
| Redeemable  common stock (450,000 shares issued and outstanding)                                                  |       | —                       |       | 1,073,160                   |       |
|                                                                                                              |       |                         |       |                        |       |
| Stockholders’  Equity:                                                                                       |       |                         |       |                        |       |
| Preferred stock,  $0.001 par value, 25,000,000 authorized; none issued                                            |       | —                       |       | —                      |       |
| Common stock,  $0.001 par value, 100 million shares authorized; 11,222,059 and 10,587,834  issued and outstanding |       | 11,222                       |       | 10,588                      |       |
| Additional paid  in capital                                                                                       |       | 1,271,648                    |       | —                      |       |
| Accumulated  deficit                                                                                              |       | (783,126                     | )          | (1,362,532                  | )          |
|                                                                                                              |       | 499,744                      |       | (1,351,944                  | )          |
|                                                                                                              |       | $                            | 20,874,336 |                        | $          | 11,062,697 |   |

 

See notes to financialstatements.

 

2

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**IWTTESORO CORPORATION AND SUBSIDIARIES**

 

**IWT TESORO CORPORATION AND SUBSIDIARIES**

 

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(Unaudited)

 
| ** **                                                   | ** ** | **For the period ended September 30,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                   | ** ** | **Three months ended**                      | ** ** | **Nine months ended** | ** ** |
| ** **                                                   | ** ** | **2003**                                    | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                   | ** ** | **(Restated)**                              | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Revenue                                                      | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Sales, net of  discounts and returns                         |       | $                                           | 8,955,693  |   | $ | 6,383,981 |   | $ | 24,147,078 |   | $ | 19,201,468 |   |
| Cost of goods  sold                                          |       | 5,373,248                                   |       | 3,787,715 |   | 14,464,855 |   | 11,593,515 |   |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Gross profit                                                 |       | 3,582,445                                   |       | 2,596,265 |   | 9,682,223 |   | 7,607,953 |   |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Expenses                                                     |       |                                        |       |   |   |   |   |   |   |
| Payroll                                                      |       | 1,536,324                                   |       | 805,698 |   | 3,939,553 |   | 2,581,635 |   |
| Delivery                                                     |       | 388,247                                     |       | 342,462 |   | 1,137,367 |   | 930,094 |   |
| General and  administrative                                  |       | 241,583                                     |       | 89,574 |   | 756,972 |   | 279,813 |   |
| Lease expense                                                |       | 330,015                                     |       | 123,755 |   | 662,649 |   | 350,961 |   |
| Depreciation and  amortization                               |       | 61,322                                      |       | 17,740 |   | 161,621 |   | 81,378 |   |
| Insurance                                                    |       | 88,157                                      |       | 92,201 |   | 248,123 |   | 259,355 |   |
| Repairs and  maintenance                                     |       | 114,267                                     |       | 62,317 |   | 284,267 |   | 166,425 |   |
| Sales expenses                                               |       | 225,168                                     |       | 52,778 |   | 481,486 |   | 150,883 |   |
| Advertising                                                  |       | 282,426                                     |       | (117,176 | ) | 859,541 |   | 256,991 |   |
| Professional  fees                                           |       | 64,425                                      |       | 1,969 |   | 303,062 |   | 45,869 |   |
| Travel and  entertainment                                    |       | 73,059                                      |       | 14,672 |   | 203,172 |   | 62,664 |   |
| Bad debts                                                    |       | 120,034                                     |       | — |   | 173,851 |   | — |   |
|                                                         |       | 3,525,027                                   |       | 1,485,990 |   | 9,211,664 |   | 5,166,068 |   |
| Income from  operations                                      |       | 57,418                                      |       | 1,110,275 |   | 470,559 |   | 2,441,885 |   |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Other  income/(expenses)                                     |       |                                        |       |   |   |   |   |   |   |
| Interest expense                                             |       | (175,885                                    | )          | (82,301 | ) | (350,466 | ) | (246,611 | ) |
| Other expense                                                |       | —                                      |       | — |   | (5,723 | ) | — |   |
| Other income                                                 |       | 727                                         |       | 11,401 |   | 2,462 |   | 12,986 |   |
| Gain (loss)on  disposal                                      |       | —                                      |       | — |   | (5,352 | ) | 5,979 |   |
|                                                         |       | (175,158                                    | )          | (70,900 | ) | (359,079 | ) | (227,646 | ) |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Net income (loss)  before taxes                              |       | (117,740                                    | )          | 1,039,375 |   | 111,480 |   | 2,214,239 |   |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Income tax  benefit                                          |       | 8,819                                       |       | — |   | 65,123 |   | — |   |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Net income  (loss)                                           |       | $                                           | (108,921   | ) | $ | 1,039,375 |   | $ | 176,603 |   | $ | 2,214,239 |   |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Earnings (loss) per  common share - Basic & diluted |       | $                                           | (0.01      | ) | $ | 0.12 |   | $ | 0.02 |   | $ | 0.25 |   |
| Earnings (loss) per  common share - Basic & diluted |       | $                                           | (0.01      | ) | $ | 0.12 |   | $ | 0.02 |   | $ | 0.25 |   |
|                                                         |       |                                        |       |   |   |   |   |   |   |
| Weighted Average  Common Shares Outstanding:                 |       |                                        |       |   |   |   |   |   |   |
| Basic                                                        |       | 11,216,961                                  |       | 9,000,000 |   | 11,167,720 |   | 9,000,000 |   |
| Diluted                                                      |       | 11,560,143                                  |       | 9,000,000 |   | 11,510,902 |   | 9,000,000 |   |

 

See notes tofinancial statements.

 

3

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

 

CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY

 
| ** **                                                  | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**   | ** ** | ** **      | ** ** | ** **  | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|------------------|------------|-------------|------------|------------------|------------|-----------------|------------|-------------|------------|------------|------------|
| ** **                                                  | ** ** | **Common Stock** | ** ** | **Paid in** | ** ** | **Subscription** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
| ** **                                                  | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**      | ** ** | **Receivable**  | ** ** | **Deficit** | ** ** | **Total**  | ** ** |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Balance,  December 31, 2001, as restated               |       | 9,000,000        |       | $           | 9,000      |             | $          | 116,400         |       | $           | (84,000    | )          | $          | (776,789 | ) | $ | (735,389 | ) |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Year Ended  December 31, 2002:                         |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Distributions,  September 30, 2002                     |       | —           |       | —      |       | —           |       | —          |       | (1,864,020  | )          | (1,864,020 | )          |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Payment of  subscription receivable                         |       | —           |       | —      |       | —           |       | 84,000          |       |        |       | 84,000     |       |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Net income, nine  months ended September 30,2002       |       | —           |       | —      |       | —           |       | —          |       | 2,214,239   |       | 2,214,239  |       |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Balance  September 30, 2002 - Before Recapitalization  |       | 9,000,000        |       | 9,000       |       | 116,400          |       | —          |       | (426,570    | )          | (301,170   | )          |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Recapitalization,  October 1, 2002                     |       | 1,800,000        |       | 1,800       |       | (116,400         | )          | —          |       | 3,542       |       | (111,058   | )          |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Balance After  Recapitalization on October 1, 2002     |       | 10,800,000       |       | 10,800      |       | —           |       | —          |       | (423,028    | )          | (412,228   | )          |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Reclassification  of redeemable stock                       |       | (450,000         | )          | (450        | )          |             |       |            |       | (60,086     | )          | (60,536    | )          |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Issuance of  shares in exchange for legal services          |       | 15,000           |       | 15          |       | 40,635           |       | —          |       | —      |       | 40,650     |       |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Issuance of  shares to employees, directors and consultants |       | 134,500          |       | 135         |       | 364,360          |       | —          |       | —      |       | 364,495    |       |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Issuance of  shares - private offering                      |       | 83,334           |       | 83          |       | 249,917          |       | —          |       | —      |       | 250,000    |       |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Exercise of  warrants                                       |       | 5,000            |       | 5           |       | 14,995           |       | —          |       | —      |       | 15,000     |       |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Net loss 12  months ended December 31, 2002            |       | —           |       | —      |       | —           |       | —          |       | (536,701    | )          | (536,701   | )          |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Accretion of  redeemable stock                              |       | —           |       | —      |       | (669,907         | )          | —          |       | (342,717    | )          | (1,012,624 | )          |
|                                                        |       |             |       |        |       |             |       |            |       |        |       |       |       |
| Balance  December 31, 2002, as restated                |       | 10,587,834       |       | $           | 10,588     |             | $          | —          |       | $           | —     |       | $          | (1,362,532 | ) | $ | (1,351,944 | ) |

 

4

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**IWT TESOROCORPORATION AND SUBSIDIARIES**

 

CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ 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                               |       | 136,668          |       | 136         |       | 409,864        |       | —          |       | 410,000    |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Exercise of  warrants                                                |       | 10,000           |       | 10          |       | 29,990         |       | —          |       | 30,000     |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Issuance of  shares to employees and directors for services rendered |       | 21,000           |       | 21          |       | 70,839         |       | —          |       | 70,860     |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Cancellation of  shares issued to consultant                         |       | (5,000           | )          | (5          | )          | (27,495        | )          | —          |       | (27,500    | )          |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Issuance of  shares - public offering                                |       | 21,557           |       | 22          |       | 118,543        |       | —          |       | 118,565    |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Cancellation of  stock repurchase agreement                          |       | 450,000          |       | 450         |       | 669,907        |       | 402,803         |       | 1,073,160  |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Net income, nine  months ended September 30, 2003               |       | —           |       | —      |       | —         |       | 176,603         |       | 176,603    |       |
|                                                                 |       |             |       |        |       |           |       |            |       |       |       |
| Balance,  September 30, 2003, as restated                       |       | 11,222,059       |       | $           | 11,222     |           | $          | 1,271,648       |       | $          | (783,126   | ) | $ | 499,744 |   |

 

See notes tofinancial statements.

 

5

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**IWT TESOROCORPORATION AND SUBSIDIARIES**

 

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(Unaudited)

 
| ** **                                                                                           | ** ** | **Nine months ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                           | ** ** | **2003**                                  | ** ** | **2002** | ** ** |
| ** **                                                                                           | ** ** | **(Restated)**                            | ** ** | **(Restated)** | ** ** |
|                                                                                                 |       |                                      |       |   |   |
| Cash flows from  operating activities:                                                               |       |                                      |       |   |   |
| Net income                                                                                           |       | $                                         | 176,603    |   | $ | 2,214,239 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                                      |       |   |   |
| Depreciation and  amortization                                                                       |       | 161,621                                   |       | 81,378 |   |
| Deferred income  taxes                                                                               |       | (97,124                                   | )          | — |   |
| Provision for  doubtful accounts and reserve for returns                                             |       | 98,887                                    |       | — |   |
| (Gain) loss on  disposal of property and equipment                                                   |       | 5,352                                     |       | (5,979 | ) |
| Stock issued for  services and compensation                                                          |       | 43,360                                    |       | — |   |
| Changes in operating  assets and liabilities:                                                        |       |                                      |       |   |   |
| (Increase)  Decrease in:                                                                             |       |                                      |       |   |   |
| Accounts  receivable                                                                                 |       | (2,385,333                                | )          | (882,966 | ) |
| Inventories                                                                                          |       | (6,112,344                                | )          | 523,140 |   |
| Prepaid expenses                                                                                     |       | (289,308                                  | )          | (520,800 | ) |
| Other assets                                                                                         |       | (146,733                                  | )          | (36,349 | ) |
| Increase in:                                                                                         |       |                                      |       |   |   |
| Accounts payable                                                                                     |       | 5,852,650                                 |       | 550,065 |   |
| Accrued expenses                                                                                     |       | 500,106                                   |       | 8,499 |   |
| Net cash  provided by (used in) operating activities                                                 |       | (2,192,263                                | )          | 1,931,227 |   |
|                                                                                                 |       |                                      |       |   |   |
| Cash flows from  investing activities:                                                               |       |                                      |       |   |   |
| Acquisitions of  property and equipment                                                              |       | (844,535                                  | )          | (23,170 | ) |
| Proceeds from  sale of equipment                                                                     |       | —                                    |       | 11,000 |   |
| Net cash used in  investing activities                                                               |       | (844,535                                  | )          | (12,170 | ) |
|                                                                                                 |       |                                      |       |   |   |
| Cash flows from  financing activities:                                                               |       |                                      |       |   |   |
| Proceeds from  revolving line of credit                                                              |       | 31,466,902                                |       | 18,500,000 |   |
| Payments on revolving  line of credit                                                                |       | (28,722,817                               | )          | (18,612,514 | ) |
| Proceeds from  issuance of stock                                                                     |       | 558,565                                   |       | — |   |
| Principal  payments on capital leases                                                                |       | (43,021                                   | )          | (27,991 | ) |
| Proceeds from  related party note                                                                    |       | —                                    |       | 125,273 |   |
| Principal  Payments on notes payable                                                                 |       | (39,193                                   | )          | — |   |
| Repayment of  stockholder loan                                                                       |       | (110,050                                  | )          | — |   |
| Distribution to  stockholders                                                                        |       | —                                    |       | (1,864,020 | ) |
| Net cash  provided by (used in) financing activities                                                 |       | 3,110,386                                 |       | (1,879,252 | ) |
|                                                                                                 |       |                                      |       |   |   |
| Net Increase in  Cash                                                                                |       | 73,588                                    |       | 39,805 |   |
|                                                                                                 |       |                                      |       |   |   |
| Cash, Beginning                                                                                      |       | 574,046                                   |       | 402,500 |   |
| Cash, Ending                                                                                         |       | $                                         | 647,634    |   | $ | 442,305 |   |
|                                                                                                 |       |                                      |       |   |   |
| Cash Paid  (Received) During the Period for:                                                         |       |                                      |       |   |   |
| Interest expense                                                                                     |       | $                                         | 350,466    |   | $ | 246,611 |   |

 

See notes tofinancial statements.

 

6

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**IWTTESORO CORPORATION AND SUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**NINEMONTHS ENDED SEPTEMBER 30, 2003**

 

**NOTE 1                 BASIS OF PRESENTATION ANDPRINCIPLES OF CONSOLIDATION**

 

The accompanyingconsolidated financial statements include the accounts of the Company and itswholly owned subsidiaries, International Wholesale Tile, Inc. (IWT), IWTTesoro International, Inc. (International) and IWT Tesoro Transport, Inc.(Transport).  All significant inter-company balances and transactions havebeen eliminated.

 

The accompanyingconsolidated financial statements of the Company have been prepared inaccordance with the instructions to Form 10-QSB and, therefore, omit orcondense certain footnotes and other information normally included in financialstatements prepared in accordance with generally accepted accountingprinciples.  It is suggested that these condensed financial statementsshould be read in conjunction with the Company’s financial statements and notesthereto included in the Company’s audited financial statements on Form 10KSB/Afor the fiscal year ended December 31, 2002.

 

The accounting policiesfollowed for interim financial reporting are the same as those disclosed inNote 1 of the Notes to Financial Statements included in the Company’s auditedfinancial statements for the fiscal year ended December 31, 2002, whichare included in Form 10KSB/A.

 

In the opinion ofmanagement, the unaudited financial statements include all necessaryadjustments (consisting of normal, recurring accruals) for a fair presentationof the financial position, results of operations and cash flow for the interimperiods presented.  Preparing financial statements requires management tomake estimates and assumptions that affect the reported amounts of assets, liabilities,revenues and expenses.  Actual results may differ from theseestimates.  Interim results are not necessarily indicative of results fora full year.  The results of operations for the nine-month period ended September 30,2003 are not necessarily indicative of operating results to be expected for afull year.

 

**NOTE 2                 NATUREOF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Stock Options

 

The Company elected toaccount for stock options issued to employees in accordance with AccountingPrinciples Board Opinion No. 25 (APB Opinion No. 25)*Accounting For Stock Issued to Employees*and related interpretations, which established financial accounting andreporting for compensation cost of stock issued to employees throughnon-variable plans, variable plans, and non-compensatory plans, and accountsfor stock options and warrants issued to non-employees in accordance with SFAS123,*Accounting for Stock-Based Compensation*,which established a fair value method of accounting for stock compensation planswith employees and others.

 

No options were grantedduring the nine months ended September 30, 2003 and 2002.

 

7

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Had compensation costsfor the Company’s stock option granted during the year ended December 31,2002, been determined on the fair market value at the grant dates for theoptions, consistent with Statement of Accounting Standards No. 123,*Accounting for Stock Based Compensation*(Statement No. 123), the Company’s results of operations for the yearended December 31, 2002 would have changed to the pro-forma amountsindicated.

 
| ** **                                                                                                                        | ** ** | **2002** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Net income as  reported                                                                                                           |       | $        | 1,677,538  |   |
|                                                                                                                              |       |     |       |
| Add: Stock based employee compensation cost  determined under fair value based method for all awards, net of related tax effects. |       | (2,697   | )          |
|                                                                                                                              |       |     |       |
| Pro-forma net  income                                                                                                             |       | $        | 1,674,841  |   |
|                                                                                                                              |       |     |       |
| Net income per  share basic – diluted                                                                                        |       |     |       |
| As reported                                                                                                                       |       | $        | 0.15       |   |
| Pro-forma                                                                                                                         |       | $        | 0.15       |   |

 

Accounting Pronouncements

 

In December 2002,the FASB issued SFAS No. 148,*Accounting for Stock-Based Compensation — Transition and Disclosure,*which amended SFAS No. 123,*Accountingfor Stock-Based Compensation.*  The new standard providesalternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. Additionally, the statement amends the disclosure requirements of SFAS No. 123to require prominent disclosures in the annual and interim financial statementsabout the method of accounting for stock-based employee compensation and theeffect of the method used in reported results.  This statement iseffective for financial statements for fiscal years ending after December 15,2002.  In compliance with SFAS No. 148, the Company has elected tocontinue to follow the intrinsic value method in accounting for its stock-basedemployee compensation arrangement as defined by APB No. 25.

 

Earnings per Share

 

Basic earnings per sharefor each year is computed by dividing income for the year by the weightedaverage number of common shares outstanding during the year.  Dilutedearnings per share include the effects of common stock equivalents to theextent they are dilutive.

 

8

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Basic and dilutedweighted average number of shares outstanding at September 30th is as follows:

 
| ** **                                             | ** ** | **2003**   | ** ** | **2002**  | ** ** |
|--------------------------------------------------------|------------|------------|------------|-----------|------------|
|                                                   |       |       |       |      |       |
| Basic weighted  average number of shares outstanding   |       | 11,167,720 |       | 9,000,000 |       |
|                                                   |       |       |       |      |       |
| Diluted weighted  average number of shares outstanding |       | 11,510,902 |       | 9,000,000 |       |

 

At September 30,2003, the total number of additional shares that could further dilute basic EPSin the future, but were not included in the computation of diluted EPS becauseof their antidilutive effect, was 21,557 shares.  At September 30,2002, there were no common stock equivalents that could potentially dilutebasic EPS in the future.

 

**NOTE 3                 CONCENTRATION OF CREDIT RISK**

 

Financial instrumentsthat potentially subject the Company to credit risk include cash on depositwith two financial institutions amounting to $644,134 at September 30,2003, which was insured for up to $100,000 per financial institution by theU.S. Federal Deposit Insurance Corporation.

 

The Company obtainsdetailed credit evaluations of customers and establishes credit limits asrequired and routinely assesses the financial strength of its customers. The Company competes primarily in the sale of ceramic tile and marble marketsand sells its products to a multitude of customers.  There is nodisproportionate concentration of credit risk.

 

**NOTE 4                 ACCOUNTS RECEIVABLE**

 

Accounts receivableconsisted of the following:

 
| ** **                                        | ** ** | **September 30,  2003** | ** ** | **December 31,  2002** | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                              |       |                         |       |                        |       |
| Accounts  receivable                              |       | $                            | 5,344,110  |                        | $          | 2,958,777 |   |
| Less allowance  for doubtful accounts and returns |       | (182,132                     | )          | (99,253                     | )          |
|                                              |       |                         |       |                        |       |
|                                              |       | $                            | 5,161,978  |                        | $          | 2,875,532 |   |

 

Bad debt expense for thenine months ended September 30, 2003 was $173,851. There was no bad debtexpense for the nine months ended September 30, 2002.

 

9

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**NOTE 5                 INVENTORY**

 

Inventory consisted of thefollowing:

 
| ** **            | ** ** | **September 30,  2003** | ** ** | **December 31,  2002** | ** ** |
|-----------------------|------------|------------------------------|------------|-----------------------------|------------|
|                  |       |                         |       |                        |       |
| Tiles                 |       | $                            | 10,986,972 |                        | $          | 4,692,974 |   |
| Inventory in  transit |       | 1,173,248                    |       | 1,354,902                   |       |
|                  |       |                         |       |                        |       |
|                  |       | $                            | 12,160,220 |                        | $          | 6,047,876 |   |

 

Inventory in transitconsists of merchandise purchased overseas, which is not yet received in thewarehouse.  The Company obtains legal title at the shipping point. Inventory cost includes the purchase price and in-bound freight.

 

**NOTE 6                 PROPERTYAND EQUIPMENT**

 

Property and equipmentconsisted of the following:

 
| ** **                     | ** ** | **September 30,  2003** | ** ** | **December 31,  2002** | ** ** | **Depreciation  Period  in Years** | ** ** |
|--------------------------------|------------|------------------------------|------------|-----------------------------|------------|------------------------------------|------------|
|                           |       |                         |       |                        |       |                               |       |
| Furniture and  fixtures        |       | $                            | 303,371    |                        | $          | 89,238                             |       | 5-10 |   |
| Machinery and  equipment       |       | 477,994                      |       | 326,165                     |       | 7-10                               |       |
| Vehicles                       |       | 262,434                      |       | 207,071                     |       | 5                                  |       |
| Computer  equipment            |       | 322,392                      |       | 131,407                     |       | 3-5                                |       |
| Leasehold  improvements        |       | 409,125                      |       | 108,220                     |       | 7                                  |       |
|                           |       | 1,775,316                    |       | 862,101                     |       |                               |       |
| Less accumulated  depreciation |       | (479,718                     | )          | (372,599                    | )          |                               |       |
|                           |       |                         |       |                        |       |                               |       |
|                           |       | $                            | 1,295,598  |                        | $          | 489,502                            |       |   |   |

 

Depreciation expense forthe nine months ended September 30, 2003 and 2002 was $161,621 and $81,378,respectively.

 

10

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**NOTE 7                 NOTES PAYABLE**

 

The Company hasoutstanding notes payable as follows:

 
| ** **                              | ** ** | **September 30,  2003** | ** ** | **December 31,  2002** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                    |       |                         |       |                        |       |
| Notes Payable –  Related Parties   |       | $                            | 338,662    |                        | $          | 448,712 |   |
| Notes Payable –  Unrelated Parties |       | 112,105                      |       | 113,652                     |       |
|                                    |       |                         |       |                        |       |
|                                    |       | 450,767                      |       | 562,364                     |       |
| Less current  portion                   |       | (59,227                      | )          | (48,780                     | )          |
|                                    |       |                         |       |                        |       |
|                                    |       | $                            | 391,540    |                        | $          | 513,584 |   |

 

Interest expense relatedto these notes for the nine months ended September 30, 2003 and 2002 was$32,008 and $47,500, respectively.

 

11

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Long-term debt maturitiesfor all notes payable for the next five years and thereafter are as follows:

 
| 2003                        |   | $       | 18,070  |   |
|-----------------------------|--------|---------|---------|--------|
| 2004                        |   | 50,578  |    |
| 2005                        |   | 25,880  |    |
| 2006                        |   | 7,622   |    |
| 2007                        |   | 7,622   |    |
| 2008 &  thereafter |   | 340,995 |    |
|                        |   |    |    |
|                        |   | $       | 450,767 |   |

 

**NOTE 8                 LOANS PAYABLE**

 

On September 10,2003, the Company entered into a new loan and security agreement with afinancial institution for a revolving line of credit with a maximum limit of$17,000,000.  The agreement specifies that proceeds from this revolvingcredit loan must be used solely to satisfy the Company’s previous existing lineof credit in the amount of $7,288,903 and for general working capitalneeds.  All present and future assets of the Company collateralize thisloan. The rate of interest in effect for this agreement is calculated withreference to the Base Rate or LIBOR (London Interbank Offered Rate).  Thebalance due at September 30, 2003 is $7,583,869.

 

Base Rate advances bear afluctuating interest rate per annum equal to prime plus 0.50%.  LIBORadvances bear a fixed rate per annum equal to 3.00% plus the LIBOR for theapplicable interest period.

 

The Company is subject toa number of restricted covenants under the loan agreementwhich are currently being finalized.

 

Interest expense for thenine months ended September 30, 2002 related to the previous line ofcredit was $167,097.  For the nine months ended September 30, 2003,interest expense on this line of credit amounted to $216,217. Additionally, a termination fee of $75,000 was assessed for prepayment of thisloan.

 

For the twenty-day periodended September 30, 2003, interest expense related to the new revolvingline of credit amounted to $17,409.

 

The Company incurred aclosing fee of $85,000 for the new revolving line of credit.  This fee wasdeferred and will be amortized using the straight-line method over the 3-yearlife of the loan, with a charge to interest expense.

 

12

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**NOTE 9                 LEASES**

 

Capital Leases

 

The Company’s propertyunder capital leases is included in property and equipment (See Note 6) and issummarized as follows:

 
| ** **                            | ** ** | **September 30,  2003** | ** ** | **December 31,  2002** | ** ** |
|---------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                  |       |                         |       |                        |       |
| Equipment                             |       | $                            | 394,326    |                        | $          | 266,672 |   |
| Less:   Accumulated depreciation |       | (84,904                      | )          | (58,724                     | )          |
|                                  |       |                         |       |                        |       |
| Net assets under  capital leases      |       | $                            | 309,422    |                        | $          | 207,948 |   |

 

Operating Leases

 

The Company leases officeand warehouse space under a non-cancelable operating lease, which has aninitial term in excess of one year.  In May 2003, the Company tookoccupancy of a new warehouse and office facility in Palm City,Florida.   The Company entered into a new lease agreement for over48,000 square feet of warehouse space at the old location, and a one-yearsub-lease agreement for 20,000 square feet of warehouse space was signedeffective August 1st,2003. The Company also leases office space in Westport, Connecticut for itscorporate headquarters.

 

At September 30,2003, future minimum annual lease payments under operating and capital leasesare as follows:

 
| ** **           | ** ** | **Operating  Leases** | ** ** | **Capital  Leases** | ** ** |
|----------------------|------------|-----------------------|------------|---------------------|------------|
|                 |       |                  |       |                |       |
| 2003                 |       | $                     | 237,527    |                | $          | 15,311 |   |
| 2004                 |       | 908,639               |       | 63,111              |       |
| 2005                 |       | 851,887               |       | 58,924              |       |
| 2006                 |       | 872,437               |       | 48,963              |       |
| 2007                 |       | 893,800               |       | 35,982              |       |
| 2008 and  thereafter |       | 5,232,645             |       | 6,230               |       |
|                 |       |                  |       |                |       |
|                 |       | $                     | 8,996,935  |                | $          | 228,521 |   |

 

Total lease expense underoperating leases was $662,649 and $350,961 for the nine months ended September 30,2003 and 2002, respectively.

 

Total interest expenseunder capital leases was $9,831 and $8,330 for the nine months ended September 30,2003 and 2002, respectively.

 

13

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**NOTE 10               INCOME TAXES**

 

At September 30,2003 the Company had usable net operating loss carryforwards of approximately$694,000 for income tax purposes, available to offset future taxable income ofthe U.S. entity, expiring through 2022. No valuation allowance has beenrecorded due to the certainty of the Company’s ability to generate futuretaxable income.

 

**NOTE 11****               STOCKHOLDERS’ EQUITY**

 

The Articles ofIncorporation provide for the authorization of 25,000,000 shares of convertiblepreferred stock at $0.001, and 100,000,000 shares of common stock at $0.001 parvalue.  Each share of preferred stock is convertible into 1 share ofcommon stock.  At September 30, 2003, 11,222,059 shares of commonstock were issued and outstanding.

 

Common Stock

 

During the quarter ended September 30,2003, the Company issued 17,807 shares of common stock and 17,807 warrants for$5.50 per unit, for a total of $97,940, to various investors pursuant to thepublic offering. (See Note 16)

 

14

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**NOTE 12****               STOCK OPTIONS AND COMPENSATION PLAN**

 

Stock Compensation Plan

 

On December 27, 2001,IWT Tesoro Corporation adopted the “Stock Incentive Plan.”  The Company’sStock Incentive Plan provides that eligible employees, consultants, andaffiliates may be granted shares of common stock.  Under the plan, theoptions granted are non-qualified stock options, incentive stock options, andrestricted stock.  The aggregate total common stock that may be issued is4,000,000 shares.  For the nine months ended September 30, 2003,21,000 restricted shares were issued to employees directors and consultants forservices rendered.  For the nine months ended September 30, 2002, norestricted shares were issued to employees, directors and consultants forservices rendered under the “Stock Incentive Plan.”    Theaggregate total of restricted shares issued under the Stock Incentive Plan is145,500 through September 30, 2003.  These shares are currently notregistered and are subject to Rule 144 without any additional restrictionsimposed by the Compensation Committee at the present time.

 

In accordance with SFAS No. 123,for options issued to employees, the Company has elected to account for thesestock options under APB No. 25 and related interpretations in accountingfor its plan.  Accordingly, no compensation costs have been recognized foroptions issued under the plan as of December 31, 2002.  Hadcompensation costs for the Company’s stock option been determined on the fairmarket value at the grant dates for the options, consistent with Statement ofAccounting Standards No. 123,*Accounting for Stock Based Compensation* (Statement No. 123), the Company’s results of operations for the year ended December 31,2002 would have changed to the pro-forma amounts indicated.  (See Note2)  No options were issued during the nine months ended September 30,2003.

 

**NOTE 13****               ACQUISITION**

 

On October 1, 2002,the Company acquired International Wholesale Tile, Inc. In connection withthe legal form of this transaction, International Wholesale Tile, Inc.became a wholly owned subsidiary of IWT Tesoro Corporation.  A total of9,000,000 shares of common stock were issued for the acquisition.  Foraccounting purposes, the acquisition has been treated as a capital transactionand as a recapitalization of International Wholesale Tile, Inc.

 

As part of thetransaction, the Company and each of the three shareholders of InternationalWholesale Tile, Inc. entered into a repurchase agreement, to commence on January 1,2003 for three years, by which the three shareholders may sell a certain amountof the Company’s common stock back to the Company for a price based on anamount equal to 88% of the average trading price of the Company’s common stockso long as the stock is trading.  The amount of stock is generally up to25,000 shares for the first year, up to 50,000 shares for the second year, and upto 75,000 shares for the third year.  The repurchase agreement wascontingent upon trading of the Company’s stock on the NYSE, the ASE, theNASDAQ, the Over the Counter Bulletin Board, or the “Pink Sheets”.

 

On June 26, 2003 theCompany voted to cancel the repurchase agreement; consequently the financialstatements were adjusted to reflect the change.

 

**NOTE 14****               SEGMENT INFORMATION**

 

The Company manages itsoperations as one segment and all revenue is derived from customers in theUnited States.

 

**NOTE 15****               SUBSIDIARIES**

 

On January 8, 2003,the Company incorporated a subsidiary, IWT Tesoro International, Ltd.(ITIL).  This subsidiary was set up as a foreign subsidiary, to be basedin Bermuda to handle future operations of foreign subsidiaries. Organizational costs related to the incorporation totaling $8,311 werecapitalized and are being amortized over 5 years.  Amortization expensefor the nine months ended September 30, 2003 was $1,247.

 

On January 24, 2003,the Company set up IWT Tesoro Transport, Inc. (ITTI).  Initially,this corporation will be a transport broker, but future plans include overlandtransport of tile from Florida to destinations within the United States andreturn shipments of other freight back to Florida.

 

15

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**NOTE 16               PUBLIC OFFERING**

 

On April 11, 2003,the Company filed a registration statement with the Securities and ExchangeCommission that was declared effective on June 17, 2003. Two offeringswere included in the registration statement. The first was the offer and saleof 250,000 units at $5.50 per unit.  Each unit consists of one share ofTesoro common stock and a warrant to purchase one share at $7.00 per sharethrough June 17, 2006.  Through July 7, 2003, these units wereoffered exclusively to current stockholders of the Company.  The secondoffering was to register on behalf of certain Tesoro stockholders an aggregateof 1,243,502 shares for resale; of this total 443,500 have no lock-up period,699,002 are subject to a six-month lock-up period, and 101,000 are subject to a12-month lock-up period.  The Company elected to extend this offering to December 14,2003.  As of September 30, 2003, a total of 21,557 units have beenissued under this offering.

 

On September 22,2003, the Company entered into a Selected Dealer agreement with an investmentcompany to serve as an exclusive selected dealer for the offering of 250,000units.

 

In addition, the Companyadded a “Purchaser Questionnaire” to the subscription agreement to be executedby all investors participating in the offering of the 250,000 units.

 

**NOTE 17****               SUBSEQUENT EVENTS**

 

Effective October 28,2003, the NASD approved Noble International Investments, Inc. as theexclusive selected dealer of the Company’s offer and sale of up to 250,000 unitspursuant to its registration statement filed with the SEC.

 

**NOTE 18               RESTATEMENT**

 

The Company has restatedthe consolidated balance sheets as of September 30, 2003 and theconsolidated statements of operations, stockholders’ equity and cash flows for thenine 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 accounts receivable and net sales wereoverstated by approximately $62,000 as of and for the period ended September 30,2003.

 

***Accrued Expenses***

 

Management determinedthat the Company had been incorrectly calculating the accruals for salescommissions. Management revised this calculation and determined that accruedexpenses were understated by approximately $271,000 as of September 30,2003.

 

***Sample and Display Boards***

 

Management reassessed itsmethodology for accounting for sample and display boards and determined thatthis promotional merchandise should have been expensed when distributed ratherthan capitalized and depreciated. The adjustments resulting from therestatement decreased net income by approximately $149,000 for the three monthsended September 30, 2003 and $518,000 for the nine months ended September30, 2003. This change also reduced property and equipment as of September 30,2003 by approximately $2,714,000.

 

***Deferred Taxes***

 

In connection with therestatements for accrued expenses and sample and display boards describedabove, the related tax effect was recorded resulting in a net deferred taxasset for the year ended September 30, 2003 of approximately $694,000.

 

***Stockholders Equity***

 

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 1,2003. 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, 2002.

 

16

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**NOTE 18         RESTATEMENT (continued)**

 

| ** **                   | ** ** | **September 30, 2003**  | ** ** |
|------------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | **As  Previously  Reported** | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| Consolidated  Balance Sheet: |       |                         |       |   |   |   |   |
| Accounts  receivable         |       | $                            | 5,224,476  |   | $ | (62,498 | ) | $ | 5,161,978 |   |
| Property and  equipment, net |       | 4,009,986                    |       | (2,714,388 | ) | 1,295,598 |   |
| Deferred tax  assets         |       | 22,399                       |       | 671,921 |   | 694,320 |   |
| Accrued expenses             |       | 263,602                      |       | 431,206 |   | 694,808 |   |
| Deferred tax  liability      |       | —                       |       | — |   | — |   |
| Additional paid  in capital  |       | 2,360,519                    |       | (1,088,871 | ) | 1,271,648 |   |
| Retained  earnings (deficit) |       | $                            | 664,174    |   | $ | (1,447,300 | ) | $ | (783,126 | ) |

 

| ** **                             | ** ** | **For the Three Months Ended September 30, 2003** | ** ** |
|----------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                             | ** ** | **As  Previously  Reported**                           | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| Consolidated  Statement of Operations: |       |                                                   |       |   |   |   |   |
| Net Sales                              |       | $                                                      | 8,969,586  |   | $ | (13,893 | ) | $ | 8,955,693 |   |
| Gross profit                           |       | 3,596,338                                              |       | (13,893 | ) | 3,582,445 |   |
| Operating  expenses                    |       | 3,327,076                                              |       | 197,951 |   | 3,525,027 |   |
| Income (loss)  before                  |       |                                                   |       |   |   | — |   |
| income taxes                           |       | 94,104                                                 |       | (211,844 | ) | (117,740 | ) |
| Income tax  benefit (expense)          |       | 11,314                                                 |       | (2,495 | ) | 8,819 |   |
| Net Income  (loss)                     |       | $                                                      | 105,418    |   | $ | (214,339 | ) | $ | (108,921 | ) |
|                                   |       |                                                   |       |   |   |   |   |
| Earnings (loss)  per share:            |       |                                                   |       |   |   |   |   |
| Basic                                  |       | $                                                      | 0.01       |   | $ | (.02 | ) | $ | (0.01 | ) |
| Diluted                                |       | $                                                      | 0.01       |   | $ | (.02 | ) | $ | (0.01 | ) |

 

| ** **                             | ** ** | **For the Nine Months Ended September 30, 2003** | ** ** |
|----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                             | ** ** | **As  Previously  Reported**                          | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| Consolidated  Statement of Operations: |       |                                                  |       |   |   |   |   |
| Net Sales                              |       | $                                                     | 24,209,576 |   | $ | (62,498 | ) | $ | 24,147,078 |   |
| Gross profit                           |       | 9,744,721                                             |       | (62,498 | ) | 9,682,223 |   |
| Operating  expenses                    |       | 8,492,779                                             |       | 718,885 |   | 9,211,664 |   |
| Income (loss)  before                  |       |                                                  |       | — |   | — |   |
| income taxes                           |       | 892,704                                               |       | (781,224 | ) | 111,480 |   |
| Income tax  benefit (expense)          |       | (43,790                                               | )          | 108,913 |   | 65,123 |   |
| Net Income  (loss)                     |       | $                                                     | 848,914    |   | $ | (672,311 | ) | $ | 176,603 | ) |
|                                   |       |                                                  |       |   |   |   |   |
| Earnings (loss)  per share:            |       |                                                  |       |   |   |   |   |
| Basic                                  |       | $                                                     | 0.08       |   | $ | (.06 | ) | $ | 0.02 |   |
| Diluted                                |       | $                                                     | 0.08       |   | $ | (.06 | ) | $ | 0.02 |   |
|                                        |            |                                                       |            |  |  |  |  |  |  |  |  |  |

 

17

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ITEM2:                  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLANOF OPERATION

 

The following discussionshould be read along with our financial statements, which are included inanother section of this filing. This discussion contains forward-lookingstatements about our expectations for our business and financial needs. Theseexpectations are subject to a variety of uncertainties and risks that may causeactual results to vary significantly from our expectations. The cautionarystatements made in this prospectus should be read as applying to allforward-looking statements in any part of this prospectus.

 

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

 

Effective October 1,2002, we acquired International Wholesale Tile, Inc. (IWT) through a shareexchange and IWT became our wholly owned subsidiary. We issued a total ofnine million shares of our common stock in exchange for all of the IWTshares.

 

Through IWT, we providehard floor and wall covering materials primarily ceramic, porcelain and granitetiles to the new construction and remodeling industries for the commercial andresidential marketplaces. We distribute our products through a network ofindependently owned dealers and distributors, buying groups and home centerretailers. We currently purchase our products predominately from foreignmanufacturers.

 

Our primary source ofrevenue is the sale of hard flooring and wall covering materials and ourprimary costs relate to the acquisition, warehousing and delivery of thoseproducts. While sales are made throughout the United States, the majority ofour sales are in the southeastern quadrant of the country. The primary sourcesof working capital are a $17.0 million (US) revolving line of credit froma large US commercial bank, stockholders’ equity and our suppliers who haveextended us terms. During 2003, we expect to begin trading our stock on theOTC-BB and to raise equity through the public market. Any new equity raisedwill be used to strengthen our balance sheet and to provide capital forcontinued growth.

 

In 2003, we have createdtwo new wholly owned subsidiary companies.  The first is IWT TesoroInternational Ltd (“International”).  International is a Bermuda basedexempt company.  International will serve as the holding company for anyinternationally based ventures we need to support expanding our sales effort.The other subsidiary is IWT Tesoro Transport, Inc. (“Transport”). Transport is a Florida corporation and a licensed freight carrier that will handleour in and out bound freight operations and backhaul third party goodsexcluding household or hazardous materials.

 

*Resultsof Operations for the Quarter ending September 30, 2003.*

 

The following discussionand analysis should be read in conjunction with the financial statements andnotes thereto that appear elsewhere in this document. The table below setsforth certain operating data, percentage numbers are relative to total revenuefor the periods indicated.

 
| ** **               | ** ** | **Quarter Ending September 30,** | ** ** |
|--------------------------|------------|---------------------------------------|------------|
| ** **               | ** ** | **2001**                              | ** ** | **2002** | ** ** | **2003** | ** ** |
|                     |       |                                  |       |   |   |   |   |
| Revenues                 |       | 4,966,258                             |       | 6,383,982 |   | 8,955,693 |   |
| Cost of Goods  Sold      |       | 3,092,352                             |       | 3,787,716 |   | 5,373,248 |   |
| Gross Margin             |       | 1,873,906                             |       | 2,596,266 |   | 3,582,445 |   |
| Gross Margin  Percentage |       | 37.73                                 | %          | 40.67 | % | 40.00 | % |
| Operating  Expenses      |       | 1,384,586                             |       | 1,485,990 |   | 3,525,027 |   |

 

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*Quarterended September 30, 2003 Compared to Quarter Ended September 30, 2002*

 

Sales for the quarterended September 30, 2003 were $8,955,693 a 40% increase over sales for thequarter ended September 30,2002. This growthfollows a 28% growth from 2001 to 2002. We are a relatively small player in agrowing market. We are entering new markets and adding new products; therefore,we expect to be able to grow faster than the market as a whole for the nextseveral years. Our share of this market is approximately 1%. According to FloorCovering Weekly, the tile market in the United States was approximately$2.34 billion in 2002 and is growing at a 11.4%percent rate.

 

As we grow, we have beenable to purchase product at lower prices and have consequently lowered our costof goods to 60% in 2002 from 64% in 2001 and 68% in 2000. While there arecertainly finite limits to improving our gross margin percentage, it isimperative that we maintain these ratios as we grow.  The gross margin forthe quarter ended September 30, 2003 was $3,582,445, a 38% increase overgross margin for the quarter ended September 30, 2002.

 

In early April 2003,we moved into a new warehouse facility of nearly 147,000 square feet, anincrease of nearly 50% over the previous facility. 5,000 square feet of the newfacility is for office space.  On June 4th and July 9th, 2003, lease addendums weresigned that added approximately 75,000 square feet to the warehouse capacity. These new additions bring the total warehouse capacity to approximately 220,000square feet.  These new facilities will allow us to increase our inventoryand better serve our customers who rely upon us to meet the short lead timesand limited inventory capacity that exist in their markets. We hope to improvethe efficiency of our warehouse operations by simplifying the receiving andshipping functions. We currently maintain between eight and ten million squarefeet of product in our facility.  Our inventory turns, in 2002, wereapproximately 3.8 times. We expect to lower those turns to about 2.0 during2003; however we cannot assure anyone that we will be successful in attainingthese expectations. Availability of product is a key success factor for us andis a good use of our capital.

 

In May 2003, wecommenced bulk sales of products, made exclusively for IWT, to wholesaledistributors throughout the United States.  The sales of these productsare made in full truckload or container load volumes, with some product beingdelivered directly to the customer from the factory (drop-shipped).  Thegross margin on these sales could be lower than our traditional business;however, we believe that the lower handling costs may offset the lost gross margin. In September 2003, we began the installation of sample racks for ourproducts in home center stores in South Florida.  As of September 30,2003, our displays were installed in forty-eight locations.

 

Making it easy for ourcustomers to sell product is also a key success factor for us. We have anextensive sampling and display program that augments the training and marketingsupport we provide our customers.

 

Operating expenses forthe quarters ended September 30, 2003 and September 30, 2002 were $3,525,027and $1,485,990, respectively. This increase of 137.2% was a result of increasesin sales related expenses, such as commissions and delivery charges, driven byour revenue growth, and investments being made in people, infrastructure andcorporate organization for future growth. With the acquisition of IWT in October 2002,we began to incur certain professional and operating expenses that are notreflected in the comparable period for 2002. In addition, we began to issuecommon stock to non-executive employees, outside directors and suppliers underthe incentive stock plan. Generally Accepted Accounting Principles require thatthese shares be expensed in the period they are issued at the fair market valueof these shares. We expect these expenses to continue.

 

On June 17, 2003,our registration statement with the Securities and Exchange Commission (SEC)became effective.  The one time costs of printing prospectuses for boththe selling shareholders and the new unit offering, the investment banking feesand legal and accounting fees associated with this offering have impacted ourquarterly expenses for the quarter ending September 30, 2003.

 

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During the second quarterof fiscal year 2003 we increased our occupancy costs, including rent, inanticipation of the expansion of the bulk sales and home center store channels.We expect these expenses to continue and to generate proportionate sales growthin the future.  In addition, during the quarter ended September 30, 2003,we completed a refinancing of our revolving credit facility.  These onetime refinancing costs also increased operating expenses for the quarter endingSeptember 30, 2003.

 

*Liquidityand Capital Resources*

 

We had cash balances of$647,634 and $574,046 at the end of September 30, 2003 and December 31,2002, respectively. We have generated positive cash flow from operations forthe last three years.

 

In October 2002, wecommenced a private offering of our common stock to accredited investors for upto one million units at $3.00 per unit. Each unit consists of one share ofcommon stock and warrants to purchase 11/2 shares initially at $3.00 per share for five yearsfrom the date the warrant was issued. The price of the warrants will increaseby $.25 per share at the beginning of each calendar quarter following the firstpublic sale of Tesoro’s common stock and continuing until the warrant expires.

 

Through its closing as ofSeptember 30, 2003, we raised $660,000 from units sold. We also raised anadditional $45,000 from 15,000 warrants that were exercised. All of theinvestors were provided with, or otherwise had access to, information about theCompany and its subsidiaries, including financial information. The proceedsfrom the offering and the warrant exercises were used for general corporatepurposes, including paying fees to outside professionals and working capital.

 

On September 10,2003, we entered into a revolving credit facility with Fleet CapitalCorporation, a division of Fleet Boston Financial Company.  This facilityis for a maximum of $ 17 million and has a three-year maturity.  Theproceeds of this loan were first used to repay the existing line of credit($7.5 million) to our wholly owned subsidiary, IWT.  Subsequent proceeds havebeen used to expand IWT’s inventory purchasing capability.  The Fleetfacility provides for certain financial and non-financial covenants and ismutually guaranteed by all of our subsidiaries.  Interest rates for thisfacility range from LIBOR plus 3.0 for 30, 60 or 90day certificates to Fleet’sprime rate plus .5%.

 

On June 17, 2003,the Securities and Exchange Commission declared IWT Tesoro Corporation’sregistration statement on Form SB-2 effective.  In connection withthe Registration Statement, two offerings are occurring.  The first is theoffer and sale of 250,000 units at $5.50 per unit.  Each unit consists ofone share of Tesoro common stock and a warrant to purchase one share at $7.00per share through June 17, 2006.  The second offering was filed onbehalf certain stockholders, for re-sale an aggregate of 1,243,502 shares.

 

The unit offering wassold on an exclusive basis through July 7, 2003 to Tesoro’s currentstockholders.  Subsequently, the units are being offered and sold byTesoro’s officers and directors, or by certain registered broker-dealers whohave entered into a Selected Dealer Agreement with Tesoro and who have beenapproved by the National Association of Securities Dealers (NASD). Through September 30, 2003, we raised $118,565 from units sold under thecurrent registration statement.

 

ITEM3:                  CONTROLS ANDPROCEDURES

 

(a)           Within the 90 days prior to the dateof this report, we carried out an evaluation, under the supervision and withthe participation of management, including our principal executive officer andprincipal financial officer, of the effectiveness of the design and operationof our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.Based upon this evaluation, our principal executive officer and principalfinancial officer concluded that our disclosure controls and procedures areeffective in timely alerting them to material information relating to us(including our consolidated subsidiaries) that is required to be included inour periodic SEC reports. There have been no significant changes in ourinternal controls or in other factors that could significantly affect thosecontrols subsequent to the date we carried out this evaluation.

 

(b)           There have been no significantchanges in our internal controls or in other factors that could significantlyaffect these controls subsequent to the date of the evaluation described in thepreceding paragraph.

 

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PART II —OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There are no legalproceedings against the Company and the Company is unaware of such proceedingscontemplated against it.

 

ITEM 2. CHANGES IN SECURITIES

 

(a)– (c)                  Notapplicable

 

(d)           On June 17, 2003, the Securitiesand Exchange Commission declared IWT Tesoro Corporation’s registrationstatement on Form SB-2 effective.

 

In connection with theRegistration Statement, two offerings are occurring.  The first is theoffer and sale of 250,000 units at $5.50 per unit.  Each unit consists ofone share of Tesoro common stock and a warrant to purchase one share at $7.00per share through June 17, 2006.  The second is an offer by certainTesoro’s stockholders to sell an aggregate of 1,243,502 shares registered forresale.

 

The unit offering wassold on an exclusive basis through July 7, 2003 to Tesoro’s currentstockholders.  Subsequently, the units are being offered and sold byTesoro’s officers and directors, or by certain registered broker-dealers whohave entered into a Selected Dealer Agreement with Tesoro and who have beenapproved by the National Association of Securities Dealers (NASD).

 

As required by Rule 463,as of September 30, 2003, 21,557 units were sold by the Company, for whichTesoro received proceeds of $118,565.  These proceeds have been used fora. the first 125,000 for offering expenses and b. the remainder for inventoryto support growth .

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. SUBMISSION OF MATTER TO A VOTE OFSECURITY HOLDERS

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

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ITEM6:  EXHIBITS AND REPORTS ON FORM 8-K

 

(a)                                  Exhibits

 
| **EXHIBIT  NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                          |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 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  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)             |

 

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| 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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*      Filedherewith.

 
| (b)    |   | Reports on  Form 8-K.                                                                                                                                                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                              |
|   | i.     | On September 10,  2003, the Company filed a report on Form 8-K stating that it had entered  into a three-year revolving credit facility with Fleet Capital Corporation. |
|        |        |                                                                                                                                                                                   |  |  |

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                 |   | IWT TESORO CORPORATION                   |
|----------------------|--------|------------------------------------------|
|                 |   |                                     |
|                 |   |                                     |
| August 30, 2005 |   | /s/ Henry J.  Boucher, Jr.          |   |
|                 |   | Henry J.  Boucher, Jr., President   |
|                 |   |                                     |
| August 30, 2005 |   | /s/ Forrest Jordan                       |   |
|                 |   | Forrest Jordan, Chief  Financial Officer |
|                      |        |                                          |  |  |

 

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