** **

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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** **

**FORM 10-QSB/A**

 

**(Mark One)**

**ý****                                 QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For theperiod from January 1, 2003 to March 31, 2003**

** **

**o****                                 TRANSITIONREPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**

 

**CommissionFile No. 0-31267**

 

**IWT TESOROCORPORATION**

(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) |

** **

**5Wicks Lane, Wilton, CT  06897**

(Address ofprincipal executive offices)

 

**(203)858-9951**

(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) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days:

ýYes                                     oNo

 

State the number ofshares outstanding of each of the issuer’s class of common equity, as of May 9.2003:  11,200,502 shares.

 

Transitional SmallBusiness Disclosure Format:   oYes               ýNo

 

 

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

 

The following discussionshould be read along with our financial statements, which are included inanother section of this prospectus. This discussion contains forward-looking statements about ourexpectations for our business and financial needs.  These expectations are subject to a variety of uncertainties andrisks that may cause actual results to vary significantly from ourexpectations.  The cautionary statementsmade in this report should be read as applying to all forward-lookingstatements in any part of this report.

 

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

 

EffectiveOctober 1, 2002, we acquired International Wholesale Tile, Inc. (IWT) through ashare exchange and IWT became our wholly owned subsidiary.  We issued a total of 9 million shares of ourcommon stock in exchange for all of the IWT shares.  As part of the transaction, Tesoro and each of the three IWTstockholders entered into a repurchase agreement by which the threestockholders may each sell a total of 150,000 shares of Tesoro’s common stockover a three-year period back to us for a price based on an amount equal to 88%of its then weighted average trading price.

 

Through IWT, we provide hardfloor and wall covering materials primarily ceramic, porcelain and stone tilesto 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 ourproducts predominately from foreign manufacturers.

 

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 throughoutthe United States, the majority of our sales are in the southeastern quadrantof the country.  The primary sources ofworking capital are a $ 7.5 million (US) revolving line of credit from adivision of a large US commercial bank, our suppliers who have extended usterms, and stockholders’ equity.  During2003, we expect to begin trading our stock on the OTC-BB and to raise equitythrough the public market.  Any newequity raised will be used to strengthen our balance sheet and to providecapital for continued growth.

 

In 2003, we have created twonew wholly owned subsidiary companies. The first is IWT Tesoro International Ltd, a Bermuda based exemptcompany.  A Bermuda exempt company is acompany domiciled in Bermuda that is not actively involved in trade or businesson the island and is therefore exempt from certain licensing requirements.  International will serve as the holdingcompany for any international based ventures we need to support expanding oursales effort.  The other subsidiary isIWT Tesoro Transport, Inc., a Florida corporation, and a licensed freightbroker that will handle our in and out bound freight operations.

 

 

 

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# **Resultsof Operations for the quarter ending March 31, 2003.**

 

Thefollowing discussion and analysis should be read in conjunction with thefinancial statements and notes thereto that appear elsewhere in thisdocument.  The table below sets forthcertain operating data as a percentage of total revenue for the periods indicated.

** **
| **Quarter  Ending March 31,** |   |
|-------------------------------|--------|
|                          |   | **2001** |   | **2002** |   | **2003** |   |
| Revenues                      |   | 4,513,755 |   | 6,014,020 |   | 6,734,765 |   |
| Cost of Goods Sold            |   | 2,995,589 |   | 3,612,316 |   | 4,079,608 |   |
| Gross Margin                  |   | 33.6 |   | 39.9 |   | 39.4 |   |
| Operating Expenses            |   | 1,242,024 |   | 1,576,713 |   | 2,385,765 |   |

 

##### March 31, 2003 Compared to March 31, 2002

 

Sales for the quarter endedMarch 31, 2003 were $6,734,765 a 12% increase over sales for the quarter endedMarch 31, 2002.  This growth follows a33% growth from 2001 to 2002.  We are arelatively small player in a growing market. We are entering new markets and adding new products; therefore, weexpect to be able to grow faster than the market as a whole for the nextseveral years.   Our share of thismarket is approximately 1%.  The tilemarket in the United States is approximately $2.1 billion and is growing at afive to seven 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 are certainly finite limits toimproving our gross margin percentage, it is imperative that we maintain theseratios as we grow.

 

Ourearnings before interest, taxes, depreciation and amortization (EBITDA) grewfrom $2 million in 2001 to $2.65 million in 2002, a 31% growth rate.  EBITDA is a concept used by financialmanagers to compare businesses that operate in different industries withdifferent capital needs, tax circumstances and debt structure.  It is not a GAAP concept and should not beused as the only measure of a company’s financial performance.  Investors should refer to the financialstatements included in this document before making any investment decisions.

 

Inearly April 2003, we moved into a new warehouse facility of nearly 147,000square feet, an increase of nearly 50% over the previous facility.  5,000 square feet of the new facility is foroffice space.  This new facility willallow us to increase our inventory and better serve our customers who rely uponus to meet the short lead times and limited inventory capacity that exist intheir markets.  We hope to improve theefficiency of our warehouse operations by simplifying the receiving andshipping functions.  We currentlymaintain between four and five million square feet of product in our facilityand expect that this will increase to between six and seven million squarefeet.  Our inventory turns, in 2002,were approximately 3.8 times.  We expectto lower those turns to about 3.2 during 2003 and to 3.0 in 2004, however wecannot assure anyone that we will be successful in attaining theseexpectations.  Availability of productis a key success factor for us and is a good use of our capital.

 

Makingit easy for our customers to sell product is a key success factor for us.  We have an extensive sampling and displayprogram that augments the training and marketing support we provide ourcustomers.  Our inventory of samples inthe field with our customers represents a 

 

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significantinvestment that is capitalized as property and equipment.  The net value on March 31, 2003 and December31, 2002 was $1,903,929 and $1,793,026, respectively on our balance sheet.

 

Operatingexpenses for the quarters ended March 31, 2003 and March 31, 2002 were $2,385,765and $1,576,713, respectively.  Thisincrease of 51.3% was a result of investments being made in people,infrastructure and corporate 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 issue common stock to non-executive employees,outside directors and suppliers under the incentive stock plan.  Generally Accepted Accounting Principlesrequire that these shares be expensed in the period they are issued at the fairmarket value of these shares.  We expectthese expenses to continue.

 

Thefirst quarter of fiscal year 2003 also saw the increase in our sales staff atIWT in anticipation of its expansion of the buying group and home center storechannels.  We expect these increasedexpenses to generate proportionate sales growth in the future.

 

##### Liquidity and Capital Resources

 

We had cash balances of $664,358 and $574,046 at the end of March 31,2003 and December 31, 2002, respectively. We have generated positive cash flow from operations for the last threeyears.

 

In October 2002, we commenced a privateoffering of our common stock to accredited investors for up to one millionunits at $3.00 per unit.  Each unitconsists of one share of common stock and warrants to purchase 1-1/2 sharesinitially at $3.00 per share for five years from the date the warrant wasissued.  The price of the warrants willincrease by $.25 per share at the beginning of each calendar quarter followingthe first public sale of Tesoro’s common stock and continuing through theexpiration date.

 

During the three months ended March 31, 2003,the Company issued 136,668 shares of common stock and 205,000 warrants for$3.00 per unit, or a total of $410,000, to 7 accredited investors pursuant to aprivate offering.  Each of theseinvestors was provided with, and had access to information concerning theCompany, including financial information.

 

On February 26, 2003, 10,000 warrants wereexercised for 10,000 shares of common stock at $3.00 per share, or a total of$30,000.

 

The proceeds from the offering and thewarrant exercises were used for general corporate purposes, including payingfees to outside professionals and working capital.

 

We intend to raise additional capital throughthe public market during 2003 for expansion. We can make no assurances, however, that we will be able to raisecapital at share prices acceptable to us. However, currently these funds are not critical to our on-goingoperations.

 

 

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Subsequent Events

 

OnApril 11, 2003, the Company filed a registration statement with the Securitiesand Exchange Commission to register 250,000 units to be sold to the public at$5.50 per unit.  Each unit consists ofone share of common stock and one warrant to purchase one share at $7.00 pershare for three years.

 

As part of the Registration Statement, wealso registered approximately 1.1 million shares held by certainstockholders.  Of those shares,approximately 350,000 shares are not subject to any lock-up period.  The remaining shares are subject to either asix-month or twelve-month lock-up.

 

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SIGNATURES

 

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

 

 
|         |   |   | IWT TESORO CORPORATION                  |
|--------------|--------|--------|-----------------------------------------|
|         |   |   |                                    |
|         |   |   |                                    |
| May 14, 2003 |   |   | /s/ Henry J. Boucher, Jr.               |   |
|         |   |   | Henry J. Boucher, Jr., President        |
|         |   |   |                                    |
| May 14, 2003 |   |   | /s/Forrest Jordan                       |   |
|         |   |   | Forrest Jordan, Chief Financial Officer |

 

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**CERTIFICATION**

 
| I, Henry J. Boucher, Jr., President, Chief  Executive Officer of IWT Tesoro Corporation, certify that:                                                                                                                                                                                                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                    |
| 1.     I have reviewed this annual report on  Form 10-QSB/A of IWT Tesoro Corporation for the quarter ended January  31, 2003;                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                    |
| 2.     Based on my knowledge, this annual report  does not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this annual report; |
|                                                                                                                                                                                                                                                                                                                                                    |
| 3.     Based on my knowledge, the financial  statements, and other financial information included in this annual report,  fairly present in all material respects the financial condition, results of  operations and cash flows of the registrant as of, and for, the periods  presented in this annual report;                    |
|                                                                                                                                                                                                                                                                                                                                                    |
| 4.     The registrant’s other certifying officer  and I am responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we have:                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                    |
| a)  designed such disclosure controls and procedures to ensure that material  information relating to the registrant, including its consolidated  subsidiaries, is made known to us by others within those entities,  particularly during the period in which this annual report is being prepared;                                                     |
|                                                                                                                                                                                                                                                                                                                                                    |
| b)  evaluated the effectiveness of the registrant’s disclosure controls and  procedures as of a date within 90 days prior to the filing date of this  annual report (the “Evaluation Date”); and                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                    |
| c)  presented in this annual report our conclusions about the effectiveness of  the disclosure controls and procedures based on our evaluation as of the  Evaluation Date;                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                    |
| 5.     The registrant’s other certifying officer  and I have disclosed, based on our most recent evaluation, to the  registrant’s auditors and the audit committee of registrant’s board of  directors (or persons performing the equivalent function):                                                              |
|                                                                                                                                                                                                                                                                                                                                                    |
| a)  all significant deficiencies in the design or operation of internal controls  which could adversely affect the registrant’s ability to record, process,  summarize and report financial data and have identified for the registrant’s  auditors any material weaknesses in internal controls; and                                         |
|                                                                                                                                                                                                                                                                                                                                                    |
| b)  any fraud, whether or not material, that involves management or other  employees who have a significant role in the registrant’s internal controls;  and                                                                                                                                                                                       |

 

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| 6.     I have indicated in this annual report  whether or not there were significant changes in internal controls or in  other factors that could significantly affect internal controls subsequent to  the date of our most recent evaluation, including any corrective actions with  regard to significant deficiencies and material weaknesses. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 
| Date: May 14, 2003 | By:                                    | /s/ Henry J. Boucher, Jr. |   |
|--------------------|----------------------------------------|---------------------------|--------|
|               | Henry J. Boucher, Jr.,                 |
|               | President and Chief  Executive Officer |

 

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**CERTIFICATION**

 
| I, Forrest Jordan, Chief Financial Officer of  IWT Tesoro Corporation, certify that:                                                                                                                                                                                                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                    |
| 1.     I have reviewed this annual report on  Form 10-QSB/A of IWT Tesoro Corporation for the quarter ended January  31, 2003;                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                    |
| 2.     Based on my knowledge, this annual report  does not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the circumstances  under which such statements were made, not misleading with respect to the  period covered by this annual report; |
|                                                                                                                                                                                                                                                                                                                                                    |
| 3.     Based on my knowledge, the financial  statements, and other financial information included in this annual report,  fairly present in all material respects the financial condition, results of  operations and cash flows of the registrant as of, and for, the periods  presented in this annual report;                    |
|                                                                                                                                                                                                                                                                                                                                                    |
| 4.     The registrant’s other certifying officer  and I am responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we have:                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                    |
| a)  designed such disclosure controls and procedures to ensure that material  information relating to the registrant, including its consolidated  subsidiaries, is made known to us by others within those entities,  particularly during the period in which this annual report is being prepared;                                                     |
|                                                                                                                                                                                                                                                                                                                                                    |
| b)  evaluated the effectiveness of the registrant’s disclosure controls and  procedures as of a date within 90 days prior to the filing date of this  annual report (the “Evaluation Date”); and                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                    |
| c)  presented in this annual report our conclusions about the effectiveness of  the disclosure controls and procedures based on our evaluation as of the  Evaluation Date;                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                    |
| 5.     The registrant’s other certifying officer  and I have disclosed, based on our most recent evaluation, to the  registrant’s auditors and the audit committee of registrant’s board of  directors (or persons performing the equivalent function):                                                              |
|                                                                                                                                                                                                                                                                                                                                                    |
| a)  all significant deficiencies in the design or operation of internal controls  which could adversely affect the registrant’s ability to record, process,  summarize and report financial data and have identified for the registrant’s  auditors any material weaknesses in internal controls; and                                         |
|                                                                                                                                                                                                                                                                                                                                                    |
| b)  any fraud, whether or not material, that involves management or other  employees who have a significant role in the registrant’s internal controls;  and                                                                                                                                                                                       |

 

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| 6.     I have indicated in this annual report  whether or not there were significant changes in internal controls or in  other factors that could significantly affect internal controls subsequent to  the date of our most recent evaluation, including any corrective actions with  regard to significant deficiencies and material weaknesses. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 
| Date: May 14, 2003 | By:                     | /s/ Forrest Jordan |   |
|--------------------|-------------------------|--------------------|--------|
|               | Forrest Jordan,         |
|               | Chief Financial Officer |

 

10

 

CERTIFICATION PURSUANT TO 18 U.S.C. sec. 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of IWT Tesoro Corporation (the “Company”) on Form 10-QSB/A for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Henry J. Boucher, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)                The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)                The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 
| Dated:  May 14, 2003 | /s/Henry J. Boucher, Jr.              |   |
|---------------------------|---------------------------------------|--------|
|                      | Henry J. Boucher, Jr.,                |
|                      | President and Chief Executive Officer |

 

11

 

CERTIFICATION PURSUANT TO 18 U.S.C. sec. 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of IWT Tesoro Corporation (the “Company”) on Form 10-QSB/A for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Forrest Jordan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)                The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)                The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 
| Dated:  May 14, 2003 | /s/Forrest Jordan       |   |
|---------------------------|-------------------------|--------|
|                      | Forrest Jordan          |
|                      | Chief Financial Officer |

 

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