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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934
|- | --------------------------------------------------------------------------------------

For the Year Ended December 26, 2003

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------------
|  |                                                                                           
|  | For   the transition period from _______ to _______                                       
|  |                                                                                           
|  | Commission   file   number:                    001-14753                                  

INTERNATIONAL SMART SOURCING, INC.
(Exact Name of Small Business Issuer as specified in its charter)

|Delaware                                                           |  | 11-3423157                              
|------------------------------------------------------------------ |  | ----------------------------------------
|(State or   other jurisdiction of   incorporation or organization) |  | (I.R.S.   Employer   Identification No.)

320 Broad Hollow Road Farmingdale, NY 11735
(Address of principal executive offices)

(631) 293-4650
(Issuers telephone number) Securities registered under section 12(b) of the Exchange Act: None. Securities registered under section 12 (g) of the Exchange Act:Common stock, Par value $.001

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

|YES
x | NO
o
|----- | ----

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  NO
x

The issuers net sales for the most recent fiscal year were $12,693,338. The aggregate market value of the voting stock held by non-affiliates based upon the last sale price on March 3, 2004 was approximately $19,830,000.  As of March 3, 2004, the Registrant had 3,777,384 shares of its Common Stock, $0.001 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive Proxy Statement to be issued in connection with the 2004 annual meeting of stockholders are incorporated by reference into Part III

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Part I

Item 1. Description of Business

The Company

International Smart Sourcing, Inc. was organized as a holding company for its three wholly-owned subsidiaries (collectively, ISS or the Company):

| | Electronic Hardware Corp.   (EHC)                                                                        
|- | -----------------------------------------------------------------------------------------------------------
|  |                                                                                                            
| | International   Plastic Technologies, Inc. (IPT) which does business as International Smart  Sourcing and
|  |                                                                                                            
| | Compact Disc Packaging   Corp. (CDP).                                                                    

The Company was originally formed in 1970 as EHC, a New York corporation, and was reorganized as of December 24, 1998 as a Delaware holding company for its two wholly owned subsidiaries, EHC and CDP. As part of the Reorganization, the stockholders of each of the subsidiaries exchanged the following percentage ownership in the respective subsidiaries for the percentage of shares of the Company: David Kassel exchanged 33% of EHC and 90% of CDP for 46.3% of the Company; Andrew Franzone exchanged 33% of EHC for 25.7%of the Company; Harry Goodman exchanged 33% of EHC for 25.7%of the Company; and David Cowan exchanged 10% of CDP for 2.3% of the Company. On May 7, 1999, IPT, a Delaware Corporation was formed.

We maintain our principal executive offices at 320 Broad Hollow Road, Farmingdale, New York 11735. Our telephone number is (631) 293-0750 and our Internet address is http://www.smart-sourcing.com.

Electronic Hardware Corporation (EHC)

Our EHC subsidiary, which comprises our distribution and manufacturing segment, has over 30 years of experience in the design, marketing and manufacture of control knobs used in industrial, consumer and military products. We also offer secondary operations on our molded products: services such as hand painting, pad printing, hot stamping and engraving are provided at a customers request. EHC manufactures, distributes and warehouses, knobs, dials and pointers as the primary distributor of Federal Supply Class 5355 to the Department of Defense through a contract with the Government.  EHC generated revenue of $10,343,032 for the year ended December 26, 2003.

EHC meets a full range of its customers needs by maintaining early and total involvement, from the design and development to the ultimate manufacture and packaging of the product. When a custom-made product is initially requested, experienced EHC application engineers assist the customer during the concept design stage, which we consider critical to the success of the manufacturing process. During this stage, EHC application engineers draw upon our experience, expertise and technological innovation to assist customers in reducing costs, meeting accelerated market schedules and ensuring high quality workmanship.

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Since January 2001 our Farmingdale, New York facility has been certified for the International Quality Standard (ISO) 9002, a manufacturing certification required by European companies.  In 2003, we
became certified to the latest version of ISO 9001:2000.  ISO 9001:2000 requires us to meet certain stringent requirements to ensure that the facilitys distribution and supply network, manufacturing processes, equipment, and associated quality control systems will satisfy our customers requirements. As an ISO 9001:2000 certified supplier, we provide services such as Engineering, Prototyping, Manufacturing, Procurement, Distribution and Kitting to our customers. In addition, EHC must constantly measure and demonstrate improvement in customer satisfaction.  We believe that maintaining our certification will benefit EHC in distribution of control knobs and plastic components and will expand our market, both nationally and internationally.

EHC was awarded a government contract through the Defense Supply Center Philadelphia (DSCP) to sell knobs, dials and pointers to the U.S. military and government customers worldwide.  The contract was awarded in June 1999 for a possible 5-year period.  DSCP had the option to extend the contract at the end of each contract year and has done so.  The current contract will complete the full 5 years in June 2004.  The Company is in discussions with the Government to renew the contract for an unspecified period.   There is no guarantee that DCSP will renew the contract as it is currently structured or that it will renew the contract at all.

Over the past year EHC has increased its sales by 26% due to the success of the current government contract and an increase in the sales of our commercial products.  EHC received an Award from the United States government based on this contract, for Innovative Business Performer of the Year Award for Small Business in 2000.  Based on the success of the government contract, we believe that we have put in place the necessary distribution infrastructure to provide superior service to the government not only on this contract but on other contracts the government might look to place in 2004.

EHC has created an efficient automated order acquisition and material procurement system.  An Electronic Data Interchange (EDI) system is in place to receive delivery orders from over 500 ordering points throughout the United States.  The system handles approximately 700 orders per week.  This same infrastructure will also provide the Companys commercial knob customers with superior service. In addition, the distribution infrastructure is a key element to the success of our outsourcing of commercial product manufacturing to lower cost areas of the world.  Our commercial business imports or utilizes the manufacturing capabilities of third-parties in England, Taiwan, Japan and China, thus broadening our lines and providing us with a competitive edge.  The Company anticipates establishing a user-friendly website which will allow customers to order directly and obtain stock and delivery information by the second quarter of
2004.

The Company intends to expand its business by increasing its penetration into back lighted knobs that are utilized in the Aerospace industry.  We are also developing a new product line of clamp knobs used in high volume industrial applications.  These two efforts are expected to increase our commercial sales.

International Plastic Technologies (IPT)

At IPT, which comprises our outsourcing segment, we specialize in assisting companies in reducing their cost of manufacturing by outsourcing manufacturing to China. IPTs product specialization includes:

| | tooling                                     
|- | --------------------------------------------
|  |                                             
| | injection molding and   secondary operations
|  |                                             
| | castings                                    
|  |                                             
| | mechanical assemblies                       

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| | electronic manufacturing   services
|- | -----------------------------------
|  |                                    
| | metal stampings                    

Through our offices in the United States and China, IPT has put in place the system necessary to simplify the transition of moving work to China.  The office in Shanghai is staffed with nineteen engineering, quality, production control and administrative personnel who provide:

| | project management      
|- | ------------------------
| | source selection        
| | engineering coordination
| | quality assurance       
| | logistics               
| | cost reduction.         

IPT generated revenue of $2,350,306 for the year ended December 26, 2003, a 5.5% increase over 2002.  IPT intends to expand its business through the Northern Ireland sales office that was established in October 2003 and through the continued expansion of a comprehensive marketing program.

There are thirty-nine manufacturers in China presently providing products for our customers.  We believe that our service provides our customers with significant competitive advantages. Savings for customers range from fifteen percent to as much as fifty percent. The more labor intensive the product, the more savings are realized. Additionally, due to the low cost of tooling, the customers return on investment is improved and overhead costs are reduced.

Compact Disc Packaging Corp. (CDP)

Our CDP subsidiary is currently inactive.  It did not generate any revenue for the year ended December 26, 2003. Its business was the manufacturing, marketing and sale of a compact disc packaging system.

Growth Strategy

Our IPT subsidiary is expanding its operations by increasing its marketing program, growing the sales force through the addition of direct salespeople and representatives in both the United States and Europe and forming additional business partnerships.  The Company has developed the infrastructure necessary to assist companies in outsourcing to China and has established an office in Shanghai, China that has engineering, quality, production control and administrative personnel in place to assist in the manufacturing of our customers products.  Our China office utilizes an intensive vendor selection process before placing purchase orders with factories; presently we have relationships with 39 factories which manufacture products for our customers.

Manufacturers in the USA are faced with the challenges associated with globalization. Based on our experience to date, we are able to reduce the cost of customers manufactured products, improve their return on investment and lower their overhead. We believe that outsourcing provides customers with a competitive advantage. However, there can be no assurance that we will be able to consummate, maintain or establish additional sales relationships necessary to achieve our growth strategies.

3



Products

Control Knobs and Assemblies

Our EHC subsidiary manufactures and distributes a full line of instrument control knobs, pointers, dials and similar devices for consumer, industrial and military electronics equipment. EHCs knobs are used for precise setting of on/off switches and volume controls and critical setting of instrumentation switches. EHC manufactures many of the knobs to order based on the customers exacting specifications. Customers of EHC order the knobs by specifying particular descriptions and features, including the shaft diameter, outer diameter, overall size, height, color, illumination, dials and markings, such as lines, dots or numbers. EHC also has a standard product line of consumer, industrial and military knobs available for sale through catalogs.

EHC is in the process of moving manufacturing of commercial products to China in order to improve profits.  As of December 26, 2003, the company has transferred approximately 80% of our manufacturing of non-military products to China and expects that 100% will be transferred by the fourth quarter of 2004.

Overall, the number of different types of knobs EHC has manufactured in its history is in the order of tens of thousands. Some knobs are manufactured with mechanical devices built into the knob. For example, one of the Companys locking knobs turns freely and sets upon depression, resisting shock, vibration, or accidental movement. A clutch knob is one that continues to turn even after the device has reached a pre-set limit so that the pressure of the turning knob does not damage the equipment. Most knobs are resin-based and injection molded. Some knobs are painted and some are delivered as molded. Certain knobs are made with aluminum inlays, caps, dials, or skirts and may have fittings of screws, bushings, springs, or set screws.

EHC was awarded a government contract by DSCP to provide knobs, dials and pointers in June 1999 for a possible 5-year period. The government had the option to extend the contract on a yearly basis and has done so each year. The contract will complete the full 5 years in June 2004.  The Company is in discussions with the Government to renew the contract.  There is no guarantee the Government will renew the contract.

Outsourcing

Our outsourcing operations produce products directly for the customers of the Company.  All products are special order and are not produced for the Companys own inventory.

We provide a full range of outsourcing including source selection, price negotiation, quality assurance and transportation. In most cases we charge our customer an agreed upon price for the order. We include in the price the cost of our services and our profit. Sometimes we act as a consultant. Our customer pays the direct costs of the order and an agreed upon fee to us. We assume title of the manufactured goods while in transit from China. These goods are insured while in transit.

Examples of types of products we make include a die-cast housing for vibratory lab mixers, hinge support for smoke dampening units used in fire safety equipment, clips to hold socks together, filler neck caps for trucking industry fuel tanks and a portable power supply.

PullPack TM

CDP manufactures a compact disc packaging unit.  CDP is currently inactive.

4



Competition

Knob and Assembly Manufacturing/Injection Molding

We believe that our segment of the plastic injection molding industry is highly fragmented and that no one participant dominates the industry. We believe that the most important competitive factor in this industry is investment in tooling, as the high cost of tooling relative to the low revenue of individual products is a barrier to entry in this market. We currently own approximately 1,500 tools, which give us the ability to manufacture over 10,000 products and assemblies. Other key competitive factors in this industry include quality of products, depth of industry knowledge, a sizable customer base, ability to provide products on a timely basis, level of experience, breadth of products and services offered, responsiveness to customer requests and ability to produce a wide variety of projects in a timely manner and at a competitive price.  We believe that our main competitors in the control knobs and components segment of the injection molding industry are
the following: Rogan Corporation, which produces instrument and consumer knobs; Philips Plastic Manufacturing Corporation, which produces consumer knobs; Davies Molding Company, which produces instrument knobs; and Korry Electronics Company, which produces military avionic knobs.

Outsourcing

We believe that the market of offshore manufacturing sources is highly fragmented and that no one participant or small number of participants dominates the market.  We consider all manufacturers, both domestic and foreign, generally to be our competition.  The principal direct competition experienced by us is from factories in China and manufacturers representatives and brokers acting on behalf of those factories.  We believe that our competitive strengths are the full spectrum of services we offer, the knowledge and experience of our U.S. and Chinese engineering and administrative staffs, their experience working together across two cultures/languages and the network of 39 qualified factories in China from whom we have been purchasing.

Suppliers and Raw Materials

EHCs principal raw materials consist of Lexan (polycarbonate), nylon and ABS (acrylonitrile-butadine-styrene). Such materials are generally available commodities sold to the injection molding industry by a variety of suppliers; the Company does not have any oral or written contracts or agreements with any suppliers.

Our IPT subsidiary is currently purchasing manufactured products in China. In such projects, the manufacturers in China will arrange for all raw materials from local suppliers. While we believe that there will be no shortage of such materials overseas and that prices will remain comparatively low, there can be no assurance that shortages will not occur. In addition, the Company is subject to the risk of political or economic dislocation in China, which could affect the availability or cost of raw materials.

Only one vendor accounts for more than 10% of our purchases, Changzhou Tianning Foreign Trade Co., Ltd.  The loss of the Companys business relationship with a principal supplier could have a material adverse effect on the Company.  While a shortage of a particular suppliers raw materials would not materially affect the Company, a general shortage of raw materials could adversely affect the Company. The Company has never experienced a shortage in raw materials and does not anticipate any shortages to occur in the reasonably foreseeable future, however, there can be no assurance that there will not be a shortage of raw materials in the future.

5



Distribution Methods

EHC sells its products to industrial customers either directly or through major distributors. EHC never sells directly to retail consumers. Approximately 33% of EHCs non government products are principally sold through the following distributors: Newark Electronics, Allied Electronics, Inc., Bisco Industries, Inc., Hardware Specialty, Anixter Pentacon, Inc. and Peerless Electronics, Inc. EHC does not have oral or written contracts or agreements with such distributors.  The Company has a government contract through Defense Supply Center Philadelphia to sell knobs, dials and pointers to the U.S. military and government customers worldwide.  The defense contract accounts for approximately 71% of sales of EHC for 2003.  All sales orders are received from a single source, the Defense Supply Center Philadelphia, and were shipped during 2003 to over five hundred separate locations.

Patents, Trademarks, Licenses and Royalty Rights

On June 16, 1998, EHC was issued Patent No. 5,765,449, which expires on June 16, 2015.  On January 26,1999, EHC was issued Patent No. 5, 862,715, which expires on January 26, 2016.

The Company may apply for additional patents relating to other aspects of its production.  There can be no assurance as to the degree of protection that existing or future patents may afford the Company, if any, or that competitors will not develop similar or superior methods or products outside the protection of any patent issued to the Company.

Employees

As of December 26, 2003, we had a total of 45 employees based domestically. 5 of these employees work on a part-time basis. 25 employees work in sales and administration, while 15 employees are factory workers.  The Shanghai China office had a total of 19 employees in engineering, quality control and administrative support.

We believe we have a satisfactory relationship with our unionized labor and have never experienced a work stoppage. The current collective bargaining agreement with Local 531 of the International Brotherhood of Teamsters, AFL-CIO, was renewed effective May 10, 2001 for a period of three years expiring May 9, 2004.  15 factory employees are represented by the collective bargaining agreement.  Union employees are covered by the Sick & Welfare Fund, Local 531, to which the Company contributes a specified amount each year.  When the contract expires on May 9, 2004, we believe that we will be able to renew the collective bargaining agreement with Local 531 for another three year period but there are no assurances that this will occur.

Trade Matters in China

On December 11, 2001, China became a member of the World Trade Organization.  We expect that Chinas membership in the World Trade Organization will continue to be a great benefit.  We anticipate that it will improve economic relations between the United States and China and increase the speed of its economic reform process.  As a result of Chinas entry, industrial tariffs will be reduced, there will be an increased liberalization regarding trade provisions and increases in service and other reforms that China must adhere to in accordance with its membership in the World Trade Organization.  However, Chinas entry into the World Trade Organization is relatively recent and we anticipate that there will be friction between China and other nations as China adjusts to the new requirements and policies.

6



Segment Information

Segment information is set forth in Note 19 to the Consolidated Financial Statements referred to in the Financial Statements and Supplementary Data section hereof and incorporated herein by reference.

Item 2. Description of Property

We operate from an approximately 20,000 square foot facility located in Farmingdale, New York. The facility is owned and operated by K&G Realty Associates, a partnership owned by David L. Kassel, our Chairman, and Harry Goodman, our Vice President. Our lease, currently under a 10-year extension, expires in December 2005. The current annual rent is approximately $182,000 per year, and provides for annual adjustments equal to the greater of the increase in the Consumer Price Index or 5%. Pursuant to a rider to the lease agreement dated as of March 1, 1998, we shall pay as additional rent, any and all real property taxes for the demised premises in excess of $26,000 per annum. In 2003, the real estate taxes were approximately $40,000 and our share was $14,000. We believe that the property is suitable for its use. We lease approximately 6,000 square feet of office space in Shanghai, China for US$6,265 a month.  The lease is for a 24 month period expiring
February 28, 2005.

The mortgage on the premises in the amount of $379,827 at December 26, 2003 was guaranteed by EHC. In January 2004, the two officers/shareholders of the Company refinanced the mortgage and EHC is no longer the guarantor.

Item 3. Legal Proceedings

The Company was named as a defendant in six employment discrimination complaints, and in October 2002 settled these complaints for an aggregate amount of approximately $42,000. Accordingly, the Company has paid $21,000 and accrued the balance of $21,000 as of December 27, 2002.  The remaining balance was paid in January 2003.  There are no pending lawsuits against the Company as of December 26, 2003.

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

No matters were submitted to shareholders for a vote during the quarter ended December 26, 2003.

Part II

Item 5. Market for Common Equity and Related Shareholder Matters

We completed our initial public offering pursuant to a Registration Statement on Form SB-2 Registration No. 333-48701, declared effective on April 23, 1999.   As of March 5, 2004, we had outstanding 3,777,384 shares of Common Stock $ .001 par value (Common Stock).  Our Common Stock is traded on the NASDAQ Bulletin Board under the symbol ISSG.

The following table sets forth the high and low bid prices for the Common Stock as reported on the Nasdaq Small Cap. The high and low bid prices reflect inter-dealer prices, without mark-up, mark-down or commission, and may not represent actual transactions.

7



|               |  | Common   Stock Sale Prices |     
|-------------- |  | -------------------------- | ----
|               |  |                            |     
|Fiscal 2003    |  | High                       |     
|               |  |                            |     
|First Quarter  |  |                            | 4.65
|Second Quarter |  |                            | 4.45
|Third Quarter  |  |                            | 4.40
|Fourth Quarter |  |                            | 5.25
|               |  |                            |     
|               |  | Common   Stock Sale Prices |     
|               |  |                            |     
|Fiscal 2002    |  |                            | High
|               |  |                            |     
|First Quarter  |  |                            | 4.00
|Second Quarter |  |                            | 3.50
|Third Quarter  |  |                            | 4.05
|Fourth Quarter |  |                            | 4.60

On March 3, 2004 there were approximately 121 holders of record but 241 beneficial holders of the Companys 3,777,384 outstanding shares of Common Stock

On March 3, 2004, the last sale price of the Common Stock as reported on the Nasdaq Bulletin Board was $ 5.25.

There are 1,755,734 warrants of the Company currently outstanding which may be exercised for 1,800,193 shares of common stock of the Company at a weighted average exercise price of $4.93 a share.   The number of shares underlying the warrants issued by the Company as part of the April 1999 IPO (IPO Warrants) were adjusted, due to the issuance of 53,334 warrants, which were issued in connection with the Companys private placement of 333,334 shares of its common stock in June and July of 2000 (the Private Placement).  The IPO warrants were for the issuance of 1,437,500 shares of common stock at $4.85 per share.  The dilution, from the Private Placement, increased the amount of shares underlying the IPO warrants to 1,471,546, after taking into consideration the exercise of 10,100 of the IPO warrants in the year ended December 29, 2000.  The remaining 1,427,400 IPO warrants, for the purchase of 1,471,546 common
shares, currently have an exercise price of $4.85 per share.  In addition to the IPO warrants, the IPO called for an issuance of 125,000 underwriter warrants for the purchase of 125,000 shares of common stock at $7.20 per share.  These warrants were adjusted as well due to the Private Placement and are now exercisable at $6.91 per share.  The number of shares issuable under the underwriter warrants were not required to be adjusted as a result of the aforementioned dilution.

The registration for the common shares issuable upon exercise of the warrants expired in April 2001 and is not currently effective.  In a letter dated April 26, 2001, the Company notified its transfer agent that it must not permit the exercise of any warrants of the Company until the registration had been declared effective by the Securities and Exchange Commission.  The Company is in the process of having its registration statement for the shares declared effective.

Dividend Policy

We intend, for the foreseeable future, to retain future earnings for use in our business. The payment of cash dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon our earnings, capital requirements, financial condition and other relevant factors.

8



Item 6. Managements Discussion and Analysis or Plan of Operation

The following discussion should be read in conjunction with the historical financial statements, including the notes thereto, of the Company included elsewhere herein.

Results of Operations

For the year ended December 26, 2003 compared to the year ended December 27, 2002:

Net Sales

Net Sales for the year ended December 26, 2003 were $12,693,338, as compared to net sales of $10,457,350 for the year ended December 27, 2002. The increase of $2,235,988 or 21% for the period was attributed to an increase in shipments under the contract with the DSCP and an increase in sales volume of EHCs non government products.

Shipments under the government contract for the year ending December 26, 2003 were $7,388,304 compared to $5,398,652 for the year ending December 27, 2002, an increase of 37%, EHCs commercial business shipments for the year ended December 26, 2003 were $3,424,430 compared to $2,890,721 for the year ended December 27, 2002, an increase of 18% and IPT sales for the year ending December 26, 2003 were $2,350,306 compared to $2,226,132 for the year ending December 27, 2002, an increase of 5.5%.

Gross Profits

The Company realized an overall gross profit margin percentage for the year ended December 26, 2003 of 40.9%, which represents an increase from the 32.3% experienced during the year ended December 27, 2002. EHC realized a 41.4%  gross profit percentage for the year ended December 26, 2003 compared to 34.6% realized for the year ended December 27, 2002.  IPT realized a 38.3% gross profit percentage for the year ended December 26, 2003 compared to 24.2% for the year ended December 27, 2002.  This increase can be attributed to the increase in the realized gross profit on sales to EHCs commercial customers, and decreases in direct costs of approximately $800,000.  The decrease in direct costs is associated with purchases from China at reduced costs as well as with a decrease in payroll associated with manufacturing processes in the Farmingdale, New York location.

Selling and Shipping

Selling and shipping expenses for the year ended December 26, 2003 were $973,489 as compared to $863,694 for the year ended December 27, 2002.  The increase of $109,795 or 13% for the period is primarily attributable to increases in sales and shipping salaries of approximately $92,000 and advertising and commission expenses of approximately $31,000.  The Company hired additional sales people to try to penetrate and expand new sales areas and expand existing markets.  Shipping salaries increased due to transfer of employees from other departments to handle the increased volume of sales due to DCSP.   Advertising increased in an attempt to attract new business.

9



General, and Administrative Expenses

General and administrative expenses for the year ended December 26, 2003 were $3,247,947 as compared to $2,768,268 for the year ended December 27, 2002.  The increase of $479,679 or 17% for the period is primarily attributable to an increase in salaries (which included year end bonuses) of approximately $320,000 plus associated payroll taxes of approximately $31,000.  Bad debt increased for the year ended December 26, 2003 by $29,000.  Professional fees increased by approximately $53,000.  Also, there was an increase in consulting fees of approximately $120,000.

Liquidity and Capital Resources

The Companys liquidity needs arise from working capital requirements, capital expenditures, and principal and interest payments.  Historically, the Companys primary source of liquidity has been cash flows generated internally from operations.  When cash flows were insufficient to meet the Companys cash needs, the Company supplemented its cash needs with bank borrowings, long term equipment financing and officer loans. The Companys cash increased to $592,935 on December 26, 2003 from $456,727 on December 27, 2002.

Cash flows provided by operating activities was $546,514 for the year ended December 26, 2003 on net income of $848,460. The increase in accounts receivable is the result of increased sales for the period. The increase in inventory is the result of the Companys buildup of inventory to respond to increased government orders and shipments.  The increase in prepaid expenses and other current assets is a result of the additional deposits on materials and molds associated with tooling and production orders that were not completed during the year ended December 26, 2003. Cash used in investing activities for the year ended December 26, 2003 was $81,368, which consisted of cash for the purchase of tooling, molds, machinery and equipment.

Net cash used in financing activities for the year ended December 26, 2003 was $328,938.Net cash of $105,766 was used to pay down the bank line of credit. Cash of $183,575 was used to make principal payments on loans and $39,597 to make capital lease repayments.

In April 2001, the Company entered into a revolving line of credit agreement with a bank that provided for a maximum borrowing of up to $1,500,000, subject to certain conditions, at an interest rate of prime plus 1.75%. The loan was secured by substantially all the assets of the company and was unconditionally guaranteed by three officers/stockholders, each limited to $250,000.  The bank that provided the Company with the above credit facility was closed by the Connecticut Banking Department on June 27, 2002, with the F.D.I.C. assuming receivership of the failed bank.  On June 24, 2003, the Company entered into an agreement with the F.D.I.C. to settle the loan at a discounted amount of $897,150 plus accrued interest.  The Company repaid $902,773 on July 30, 2003, which resulted in a gain on extinguishment of debt of $100,000.  The Company received written confirmation of its release and discharge from any further obligation to the
F.D.I.C.

On July 29, 2003, the Company closed on a Revolving Line of Credit (the line) with Peoples Bank with a maximum borrowing of up to $1,500,000.  Under the revolving line agreement the Company is required to meet certain financial covenants.  The line matures May 31, 2004 and bears interest at the Banks prime rate (4% at December 26, 2003) plus one percent (1%), payable monthly.  The lines availability will vary based on eligibility of accounts receivable and inventory.  The loan is secured by substantially all assets of the Company and $750,000 which is unconditionally guaranteed by the three officers/shareholders, each limited to $250,000.  The outstanding balance of the line at December 26, 2003 was $823,177.

10



In February 2004, the Company initiated discussions with Peoples Bank to renew the line of credit due to mature on May 31, 2004, there is no guarantee that the line will be renewed.  Management believes that they have adequate cash and cash equivalents to pay off the line should the bank not renew the line.  In addition, Management will provide savings to the Company through the reduction of overhead costs and believes operations can be sustained without the line.

Cautionary Factors Regarding Future Operating Results

The matters discussed in this form 10-KSB other than historical material are forward-looking statements.  Any such forward-looking statements are based on current expectations of future events and are subject to risks and uncertainties which could cause actual results to vary materially from those indicated.  Actual results could differ due to a number of factors, including negative developments relating to unforeseen order cancellations or push outs, the companys strategic relationships, the impact of intense competition and changes in our industry. The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments.

Critical Accounting Policies or Estimate

The Securities and Exchange Commission, or SEC, has requested that filers report their critical accounting policies.  The SEC defines critical accounting policies as those that require application of managements most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.  Preparation of the statements in accordance with these principles require that we make estimates, using available data and our judgment for such things as valuing assets, accruing liabilities, and estimating expenses.  The following is a list of what we feel are the most critical estimations that we make when preparing of financial statements.

Accounts Receivable  Allowance for Doubtful Accounts

We routinely review our accounts receivable by customer account aging to determine the collectibility of the accounts based on information we receive from the customer, past history, and economic conditions.  In doing so, we adjust our allowance accordingly to reflect the cumulative amount that we feel is uncollectible.  This estimate may vary from the proceeds that we actually collect.  If the estimate is too low we may incur higher bad debt expenses in the future resulting in lower net income.  If the estimate is too high, we may experience lower bad debt expense in the future resulting in higher net income.

Inventories  Slow Moving and Obsolescence

We estimate and reserve amounts related to slow moving and obsolete inventories that result from changing market conditions.  We develop our estimates based on the quantity and quality of individual classes of inventory compared to historical and projected sales trends.  Inventory at December 26, 2003 has been reduced by a reserve of $158,492, based on our assessment of probable exposure related to excess and obsolete inventories.  Major uncertainties in our estimation process include future industry and economic trends, future needs of our customers, our ability to retain or replace our customer base, and

11



other competitive changes in the market place.  Significant changes in any of the uncertainties used in estimating the loss exposure could result in a materially different net realizable value of our inventory.

Item 7. Financial Statements

Index to Consolidated Financial Statements

|                                                                      | Page       
|--------------------------------------------------------------------- | -----------
|                                                                      |            
|Independent   Auditors Report  for the Year Ended December 26, 2003 | F-1        
|Independent   Auditors Report  for the Year Ended December 27, 2002 | F-2        
|Consolidated   Balance Sheet                                          | F-3        
|Consolidated   Statements of Operations                               | F-4        
|Consolidated   Statements of Changes in Shareholders Equity          | F-5        
|Consolidated   Statements of Cash Flows                               | F-6        
|Notes to   Consolidated Financial Statements                          | F-7 to F-19

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Effective May 5, 2003, the Company declined to reappoint Grassi & Co. CPAs P.C. (Grassi) as its independent accountants, which action was approved by the Audit Committee of the Company on May 5, 2003.

Feldman Sherb & Co., P.C., a professional corporation of certified public accountants (Feldman) was the independent accounting firm for the Company, for the year ended December 28, 2001 and through the period ended April 17, 2002.  Feldman was merged into Grassi on April 17, 2002 with Grassi as the successor firm.

Except as described in the following sentence, the reports of Grassi and Feldman on the financial statements of the Company for either of the past two fiscal years did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.  The report of Grassi on the financial statements of the Company for the fiscal year ended December 27, 2002 and the report of Feldman on the financial statements of the Company for the fiscal year ended December 28, 2001 did, however, contain an expression of substantial doubt regarding the Companys ability to continue as a going concern.

In addition, during the Companys two most recent fiscal years and through May 5, 2003, there was no disagreement with Grassi or Feldman on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

On September 22, 2003, the Company engaged Marcum & Kleigman LLP (MKLLP) as its independent accountant to audit the financial statements for the year ending December 26, 2003.  The Company had previously engaged the services of MKLLP to review the interim financial statements of the Company in accordance with Statement on Auditing Standard Number 100 in connection with the filing of Form 10Q-SB for the quarters ended March 28, 2003 and June 27, 2003.  Prior to September 22, 2003, except as disclosed above, the Company did not consult with MKLLP regarding application of any accounting principles to a specified transaction, the type of audit opinion that might be rendered on the Companys financial statements, nor was there any matter that was the subject of a disagreement between the Company and its former auditor as described in Item 304(a)(1)(iv) of Regulation S-B.

12



Item 8A.  Controls and Procedures

As of the end of the period covered by this report, based on an evaluation of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the Chief Executive Officer and Chief Financial Officers of the Company have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SECs rules and forms.

There were no significant changes in the Companys internal controls or in any other factors that could significantly affect those controls subsequent to the date of the most recent evaluation of the Companys internal controls by the Company, including any corrective actions with regard to any significant deficiencies or material weaknesses.

13



Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with section 16(a) of the Exchange Act

Incorporated by reference from the Registrants definitive proxy statement, to be filed in accordance with rule 14a-101 with the Commission not later than 120 days after the end of the fiscal year covered by this form.

Item 10. Executive Compensation

Incorporated by reference from the Registrants definitive proxy statement, to be filed in accordance with rule 14a-101 with the Commission not later than 120 days after the end of the fiscal year covered by this form.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Incorporated by reference from the Registrants definitive proxy statement, to be filed in accordance with rule 14a-101 with the Commission not later than 120 days after the end of the fiscal year covered by this form.

Item 12. Certain Relationships and Related Transactions

Incorporated by reference from the Registrants definitive proxy statement, to be filed in accordance with rule 14a-101 with the Commission not later than 120 days after the end of the fiscal year covered by this form.

Item 13. Exhibits, and Reports on Form 8-K

(A) Exhibits (Numbered in accordance with item 601 of regulation S-B)

|Exhibit   No. |  | Description   of Exhibit                                                                                                                       
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                                                
|99.1          |  | Amendment No. 3 to the   International Smart Sourcing, Inc. Stockholders Agreement                                                            
|              |  |                                                                                                                                                
|31.1          |  | Rule 13a  14(a)/15d    14(a) certification, as adopted pursuant to Section 302 of the   Sarbanes-Oxley  Act of 2002                          
|              |  |                                                                                                                                                
|31.2          |  | Rule 13a  14(a)/15d    14(a) certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley   Act of 2002                           
|              |  |                                                                                                                                                
|32.1          |  | Certification of Chief   Executive Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to   Section 906 of the Sarbanes-Oxley Act of 2002
|              |  |                                                                                                                                                
|32.2          |  | Certification of Chief   Financial Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to   Section 906 of the Sarbanes-Oxley Act of 2002

14



(B) Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter ended December 26, 2003

Item 14. Principal Accountant Fees and Services

Incorporated by reference from the Registrants definitive proxy statement, to be filed in accordance with rule 14a-101 with the Commission not later than 120 days after the end of the fiscal year covered by this form.

15



SIGNATURES

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized.

|                          | INTERNATIONAL SMART SOURCING,   INC.                 
|------------------------- | -----------------------------------------------------
|                          |                                                      
|Date     March   17, 2004 | /s/   DAVID KASSEL                                   
|                          |                                                      
|                          | David   Kassel   Chairman and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons and in the capacities and on the dates indicated.

|Signature             |  | Title                                                            |  | Date          
|--------------------- |  | ---------------------------------------------------------------- |  | --------------
|                      |  |                                                                  |  |               
|                      |  |                                                                  |  |               
|/s/   DAVID KASSEL    |  | Chairman of the Board of Directors and Chief   Executive Officer |  | March 17, 2004
|                      |  |                                                                  | 
|                      |  |                                                                  |  |               
|/s/   ANDREW FRANZONE |  | President of EHC, Director                                       |  | March 17, 2004
|                      |  |                                                                  |  |               
|                      |  |                                                                  |  |               
|/s/   HARRY GOODMAN   |  | Vice President and   Secretary, Director                         |  | March 17, 2004
|                      |  |                                                                  | 
|                      |  |                                                                  |  |               
|/s/   DAVID HALE      |  | President, Acting Chief   Financial Officer and Director         |  | March 17, 2004
|                      |  |                                                                  | 
|                      |  |                                                                  |  |               
|/s/   RICHARD PETERS  |  | Director                                                         |  | March 17, 2004
|                      |  |                                                                  |  |               
|                      |  |                                                                  |  |               
|/s/   MICHAEL RAKUSIN |  | Director                                                         |  | March 17, 2004
|                      |  |                                                                  |  |               

16



INDEPENDENT AUDITORS REPORT

Audit Committee of the Board of Directors and Shareholders International Smart Sourcing, Inc. and Subsidiaries Farmingdale, New York

We have audited the accompanying consolidated balance sheet of International Smart Sourcing, Inc. and Subsidiaries (the Company), as of December 26, 2003 and the related consolidated statements of operations, shareholders equity and cash flows for the fiscal year ended December 26, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Smart Sourcing, Inc. and Subsidiaries as of December 26, 2003, and the consolidated results of their operations and their consolidated cash flows for the fiscal year ended December 26, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ MARCUM & KLEIGMAN LLP Marcum & Kleigman LLP

New York, New York January 30, 2004, except Note 22a which is dated February 16, 2004.

F-1



INDEPENDENT AUDITORS REPORT

To the Board of Directors of International Smart Sourcing, Inc. and Subsidiaries Farmingdale, New York

We have audited the accompanying consolidated statement of operations, changes in shareholders equity and cash flows of International Smart Sourcing, Inc. (formerly ChinaB2Bsourcing.com, Inc.) and Subsidiaries (collectively the Company), for the year ended December 27, 2002. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows for the year ended December 27, 2002, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements for the year ended December 27,2002 have been prepared assuming the Company will continue as a going concern.  The Company has suffered recurring losses and is not in compliance with a financial covenant on its credit line, which raises substantial doubt about its ability to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from outcome of this uncertainty.

As discussed in Note 3 to the financial statements, certain errors resulting in the understatement of previously reported stock based compensation as of December 27, 2002, were discovered by the management of the Company during the current year.  Accordingly, an adjustment has been made to retained earnings as of December 27, 2002, to correct the error.

| | /s/ GRASSI & CO.,   CPAs, P.C.
| | ------------------------------
| | Grassi & Co., CPAs,   P.C.    
| | Certified Public   Accountants

New York, New York March 5, 2003, except for Note 3 which is dated March 15, 2004.

F-2



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 26, 2003

|ASSETS                                                                                              |  |   |            |  
|--------------------------------------------------------------------------------------------------- |  | - | ---------- | -
|CURRENT ASSETS:                                                                                     |  |   |            |  
|Cash   and cash equivalents                                                                         |  | $ | 592,935    |  
|Accounts   receivable - net of allowance for doubtful accounts of $12,536                           |  |   | 1,276,684  |  
|Inventories,   net                                                                                  |  |   | 1,569,821  |  
|Prepaid   expenses and other current assets                                                         |  |   | 274,844    |  
|                                                                                                    |  |   |            |  
|TOTAL   CURRENT ASSETS                                                                              |  |   | 3,714,284  |  
|Property and equipment -   net                                                                      |  |   | 369,577    |  
|Investment available for   sale                                                                     |  |   | 16,828     |  
|                                                                                                    |  |   |            |  
|TOTAL   ASSETS                                                                                      |  | $ | 4,100,689  |  
|                                                                                                    |  |   |            |  
|LIABILITIES   AND SHAREHOLDERS EQUITY                                                              |  |   |            |  
|CURRENT LIABILITIES:                                                                                |  |   |            |  
|Accounts   payable and accrued expenses                                                             |  | $ | 1,003,338  |  
|Deferred   revenue                                                                                  |  |   | 64,105     |  
|Line   of credit                                                                                    |  |   | 823,177    |  
|Current   portion of long tem debt (including $86,053 to officers/shareholders)                     |  |   | 128,267    |  
|Current   portion capital lease obligations                                                         |  |   | 29,452     |  
|                                                                                                    |  |   |            |  
|TOTAL   CURRENT LIABILITIES                                                                         |  |   | 2,048,339  |  
|Long   term debt (including $182,875 to officers/shareholders) - less current   portion             |  |   | 252,713    |  
|Capital   lease obligations - less current portion                                                  |  |   | 25,545     |  
|                                                                                                    |  |   |            |  
|TOTAL   LIABILITIES                                                                                 |  |   | 2,326,597  |  
|                                                                                                    |  |   |            |  
|COMMITMENTS AND   CONTINGENCIES                                                                     |  |   |            |  
|SHAREHOLDERS EQUITY:                                                                               |  |   |            |  
|Preferred   Stock, $0.001 par value, 1,000,000 shares authorized, no shares issued or   outstanding |  |   |           |  
|Common   Stock, $0.001 par value, 10,000,000 shares authorized, 3,777,384 issued and   outstanding  |  |   | 3,777      |  
|Additional   paid-in capital                                                                        |  |   | 8,232,147  |  
|Accumulated   deficit                                                                               |  |   | (6,461,832 | )
|                                                                                                    |  |   |            |  
|TOTAL   SHAREHOLDERS EQUITY                                                                        |  |   | 1,774,092  |  
|                                                                                                    |  |   |            |  
|TOTAL   LIABILITIES AND SHAREHOLDERS EQUITY                                                        |  | $ | 4,100,689  |  
|                                                                                                    |  |   |            |  

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

F-3



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                               |  | For the   Years   Ended |           
|---------------------------------------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                                               |  |                         |           
|                                                                                               |  | December   26,   2003   |           
|                                                                                               |  |                         |           
|                                                                                               |  |                         |           
|NET SALES                                                                                      |  | $                       | 12,693,338
|COST OF GOODS SOLD                                                                             |  |                         | 7,506,419 
|                                                                                               |  |                         |           
|GROSS   PROFIT                                                                                 |  |                         | 5,186,919 
|                                                                                               |  |                         |           
|                                                                                               |  |                         | 40.9      
|OPERATING EXPENSES                                                                             |  |                         |           
|Selling   and shipping                                                                         |  |                         | 973,489   
|General   and administrative                                                                   |  |                         | 3,247,947 
|                                                                                               |  |                         |           
|TOTAL   OPERATING EXPENSES                                                                     |  |                         | 4,221,436 
|                                                                                               |  |                         |           
|INCOME (LOSS) FROM   OPERATIONS                                                                |  |                         | 965,483   
|Interest and other income                                                                      |  |                         | 35,018    
|Gain on extinguishment of   debt                                                               |  |                         | 100,000   
|Other than temporary   decline in available for sale security                                  |  |                         | (67,314   
|Interest and other   expenses                                                                  |  |                         | (184,727  
|                                                                                               |  |                         |           
|NET INCOME (LOSS)                                                                              |  | $                       | 848,460   
|                                                                                               |  |                         |           
|Earnings (loss) per share   of common stock:                                                   |  |                         |           
|BASIC:                                                                                         |  |                         |           
|Income   (loss) per share                                                                      |  | $                       | 0.22      
|                                                                                               |  |                         |           
|Weighted   average number of shares of common stock outstanding                                |  |                         | 3,777,384 
|                                                                                               |  |                         |           
|DILUTED:                                                                                       |  |                         |           
|Income   (loss) per share                                                                      |  | $                       | 0.21      
|                                                                                               |  |                         |           
|Weighted   average number of shares of common stock and common stock equivalents   outstanding |  |                         | 3,987,402 
|                                                                                               |  |                         |           

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

F-4



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

|                                                |  | Common   Stock |           | Additional   Paid-In   Capital |   | Accumulated   Deficit |  | Total |          
|----------------------------------------------- |  | -------------- | --------- | ------------------------------ | - | --------------------- |  | ----- | ---------
|                                                |  |                |          
|                                                |  | Shares         |           | Amount                         |  
|                                                |  |                |           |                                |   |                       |  |       |          
|Balance - December 28,   2001                   |  |                | 3,760,934 |                                | $ | 3,761                 |  | $     | 7,971,928
|Net   loss                                      |  |                |          |                                |   |                      |  |       |         
|Stock   compensation to employees & consultants |  |                | 16,450    |                                |   | 16                    |  |       | 203,168  
|                                                |  |                |           |                                |   |                       |  |       |          
|Balance - December 27,   2002 (Restated)        |  |                | 3,777,384 |                                |   | 3,777                 |  |       | 8,175,096
|Net   income                                    |  |                |          |                                |   |                      |  |       |         
|Stock   compemsation to consultants             |  |                |          |                                |   |                      |  |       | 57,051   
|                                                |  |                |           |                                |   |                       |  |       |          
|Balance - December 26,   2003                   |  |                | 3,777,384 |                                | $ | 3,777                 |  | $     | 8,232,147
|                                                |  |                |           |                                |   |                       |  |       |          

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

F-5



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                     |  | For the Years   Ended |         
|---------------------------------------------------------------------------------------------------- |  | --------------------- | --------
|                                                                                                     |  |                       |         
|                                                                                                     |  | December   26,   2003 |         
|                                                                                                     |  |                       |         
|                                                                                                     |  |                       |         
|Cash flows from operating   activities:                                                              |  |                       |         
|Net   income (loss)                                                                                  |  | $                     | 848,460 
|Adjustments to reconcile   net income (loss) to net cash provided by (used in) operating activities: |  |                       |         
|Non-Cash   expenses related to stock based compensation                                              |  |                       | 57,051  
|Depreciation   and amortization                                                                      |  |                       | 185,977 
|Inventory   Reserve                                                                                  |  |                       | 158,492 
|Securities   received in settlement of note and interest receivable                                  |  |                       |        
|Other   than temporary decline in available for sale security                                        |  |                       | 67,314  
|Gain   on extinguishment of debt                                                                     |  |                       | (100,000
|Changes in operating   assets and liabilities:                                                       |  |                       |         
|Accounts   receivable                                                                                |  |                       | (179,806
|Inventories                                                                                          |  |                       | (256,931
|Prepaid   expenses and other current assets                                                          |  |                       | (20,890 
|Other   assets                                                                                       |  |                       |        
|Accounts   payable and accrued expenses                                                              |  |                       | (240,115
|Deferred   revenue                                                                                   |  |                       | 26,962  
|                                                                                                     |  |                       |         
|Total   adjustments                                                                                  |  |                       | (301,946
|                                                                                                     |  |                       |         
|Net cash provided by (used   in) operating activities                                                |  |                       | 546,514 
|                                                                                                     |  |                       |         
|Cash flows from investing   activities:                                                              |  |                       |         
|Note   receivable from related parties                                                               |  |                       |        
|Expenditures   for property and equipment                                                            |  |                       | (81,368 
|                                                                                                     |  |                       |         
|Net cash (used in)   provided by investing activities                                                |  |                       | (81,368 
|                                                                                                     |  |                       |         
|Cash flows from financing   activities:                                                              |  |                       |         
|Capital   lease repayments                                                                           |  |                       | (39,597 
|Repayment   of old line of credit                                                                    |  |                       | (902,773
|Initial   draw down of new line of credit                                                            |  |                       | 902,773 
|Net   (payments) proceeds from line of credit                                                        |  |                       | (105,766
|Principal   payments of loans                                                                        |  |                       | (183,575
|                                                                                                     |  |                       |         
|Net cash (used in)   provided by financing activities                                                |  |                       | (328,938
|                                                                                                     |  |                       |         
|Net increase in cash and   cash equivalents                                                          |  |                       | 136,208 
|Cash and cash equivalents   - beginning of year                                                      |  |                       | 456,727 
|                                                                                                     |  |                       |         
|Cash and cash equivalents   - end of year                                                            |  | $                     | 592,935 
|                                                                                                     |  |                       |         
|Supplemental disclosure of   cash flow information:                                                  |  |                       |         
|Cash   paid during the year for interest                                                             |  | $                     | 95,719  
|                                                                                                     |  |                       |         
|Purchase   of equipment through capital leases payable                                               |  | $                     |        
|                                                                                                     |  |                       |         
|Conversion   of accounts payable to note payable                                                     |  | $                     |        
|                                                                                                     |  |                       |         

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

F-6



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 26, 2003 and December 27, 2002

|1. | BUSINESS OF THE   COMPANY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | International Smart   Sourcing, Inc. (formerly ChinaB2Bsourcing.com, Inc.) (International) was   incorporated in February 1998 in Delaware as a holding company for the   purpose of acquiring the common stock of Electronic Hardware Corp. (EHC)   and Compact Disc Packaging Corp., (CDP), an inactive corporation, in   connection with an initial public offering of Internationals stock (the   Offering), which was successfully completed in April of 1999. On May 7,   1999 International formed a company called International Plastic   Technologies, Inc., (IPT) a Delaware corporation.  EHC manufactures, distributes and warehouses, knobs, dials and   pointers.  IPT specializes in   assisting companies in reducing their cost of manufacturing by outsourcing   manufacturing in China.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Hereinafter, International,   EHC, CDP, and IPT are collectively referred to as the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company specializes in   the out-sourcing of manufacturing and the manufacturing of injection molded   plastic components, products and assemblies. The Company performs the   manufacturing and outsourcing functions for its customers, through its United   States facilities and through its outsourcing contacts and offices in the Peoples   Republic of China.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2. | MANAGEMENT   PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The accompanying   consolidated financial statements have been prepared in accordance with   accounting principles generally accepted in the United States of America,   which assumes continuity of operations and that assets will be realized and   liabilities will be discharged in the normal course of business.  During the year ended December 26, 2003,   the following events occurred which may have a significant impact on the   Companys financial condition, operations and cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | As of December 26, 2003,   the Company has a $1,500,000 revolving line of credit with Peoples Bank   expiring on May 31, 2004.  The Company   has initiated discussions with the Bank to renew the line.  Management believes that it has adequate   cash and cash equivalents to pay off the line should the Bank decide not to   renew.  The lines outstanding balance   is $823,177 as of December 26, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company has a current   contract with the Defense Supply Center Philadelphia (DSCP) which will   expire in June 2004.  The Company is   in discussions with the Government to renew the contract for an unspecified   period.  The Company has responded to   DSCPs initial survey.  The contract   has not yet been renewed.  The sales   to the DSCP approximated 58% of the total Companys sales in 2003.  If the revolving line of credit and the   government contract are not renewed, management will provide savings to the   Company through the reduction of overhead.    In addition, management plans to further increase its outsourcing to   China for products not sold to the US government, thereby incurring   additional significant savings on the manufacture of product.  Management has also projected its net cash   flows through December 24, 2004, estimating that as a result of the overhead   and product cost
reductions, the Company should have a positive cash balance   at fiscal year end 2004.  While there   can be no assurances, management believes that its cash on hand and expected   cash flows from operations will provide adequate cash flow to fund the   Companys operations at least through December 24, 2004.

F-7



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

|3. | PRIOR PERIOD ADJUSTMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Effective December 27, 2002, the Company corrected   an error relating to stock based compensation expense for options granted to   a consultant for which the Company did not record a compensation charge   during fiscal 2002.  Accounting   principles generally accepted in the United States of America require the   Company to record compensation expense for options granted to consultants.  As a result of the correction, the Companys   fiscal 2002 net loss, accumulated deficit and additional paid-in capital   increased by $129,159.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4. | SUMMARY OF SIGNIFICANTACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (f)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (g)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-8



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

| | (h) | Earnings   (Loss) Per Share    Basic earnings (loss) per share (EPS) is determined by dividing net income   (loss) for the period by the weighted average number of common shares   outstanding during the same period. Diluted EPS reflects the potential   dilution that could occur if securities or other contracts to issue common   stock were exercised or converted into common stock or resulted in the   issuance of common stock, which would then share in the earnings of the   Company.  For the year ended December   26, 2003 the Company had approximately 357,000 stock options and 1,728,000   warrants that were not included in the dilutive earnings per share   calculation because the exercise price of these items was greater than the   average market price of the common stock for the period. For the year ended   December 27, 2002 all stock options and warrants were antidilutive.  For the year ended December 27, 2002 the   Company had
approximately 998,500 and 1,800,193 stock options and warrants,   respectively, that were not included in the dilutive earnings per share calculation   because they were antidilutive.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The following table sets   forth the components used in the computation of basic and diluted earnings   (loss) per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                                                                          |  | For the   Years Ended |          
|--------------------------------------------------------------------------------------------------------- |  | --------------------- | ---------
|                                                                                                          |  |                       |          
|                                                                                                          |  | December   26,   2003 |          
|                                                                                                          |  |                       |          
|                                                                                                          |  |                       |          
|Numerator:                                                                                                |  |                       |          
|Net   income (loss)                                                                                       |  | $                     | 848,460  
|                                                                                                          |  |                       |          
|Denominator:                                                                                              |  |                       |          
|Weighted   average shares                                                                                 |  |                       | 3,777,384
|                                                                                                          |  |                       |          
|Effect   of dilutive securities:                                                                          |  |                       |          
|Employee   stock options                                                                                  |  |                       | 195,410  
|Stock   warrants                                                                                          |  |                       | 14,608   
|                                                                                                          |  |                       |          
|                                                                                                          |  |                       | 210,018  
|                                                                                                          |  |                       |          
|Denominator   for diluted earnings per Share-adjusted   weighted average shares after assumed conversions |  |                       | 3,987,402
|                                                                                                          |  |                       |          

| | (i) | Impairment   of Long-Lived Assets    The Company reviews long-lived assets for impairment whenever circumstances   and situations change such that there is an indication that the carrying   amounts may not be recovered. The recoverability of assets held and used in   operations is measured by a comparison of the carrying amount of the assets   to the future net cash flows expected to be generated by the assets. If such   assets are considered to be impaired, the impairment to be recognized is   measured by the amount by which the carrying amount of the assets exceeds the   fair value of the assets.                                                               
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (j) | Stock   Based Compensation    As permitted under SFAS No. 148, Accounting for Stock-Based Compensation    Transition and Disclosure, which amended SFAS No. 123, Accounting for   Stock-Based Compensation, the Company has elected to continue to follow the   intrinsic value method in accounting for its stock-based employee   compensation arrangements as defined by Accounting Principles Board Opinion   (APB) No. 25, Accounting for Stock Issued to Employees, and related   interpretations including FASB Interpretation (FIN) 44, Accounting for   Certain Transactions Involving Stock Compensation, an interpretation of APB   No. 25.  No stock-based employee

F-9



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

| |  | compensation cost is   reflected in operations, as all options granted have an exercise price equal   to or above the market value of the underlying common stock on the date of   the grant. The following table illustrates the effect on net income (loss)   per share if the Company had applied the fair value recognition provisions of   SFAS No. 123 to stock-based employee compensation:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                         |  | For the   Years Ended |         
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------- | --------
|                                                                                                                         |  |                       |         
|                                                                                                                         |  | December   26,   2003 |         
|                                                                                                                         |  |                       |         
|Net income (loss) as   reported                                                                                          |  | $                     | 848,460 
|Less: total stock-based   employee compensation expense determined under fair value method, net of   related tax effects |  |                       | (383,093
|                                                                                                                         |  |                       |         
|Pro   Forma net income (loss)                                                                                            |  | $                     | 465,367 
|                                                                                                                         |  |                       |         
|Net income (loss) per   share:                                                                                           |  |                       |         
|Basic   earnings per share as reported                                                                                   |  | $                     | 0.22    
|Pro   Forma basic earnings per share                                                                                     |  | $                     | 0.12    
|Diluted   earnings per share as reported                                                                                 |  | $                     | 0.21    
|Pro   Forma diluted earnings per share                                                                                   |  | $                     | 0.12    

| | (k) | Accounts   Receivable  Allowance for Doubtful Accounts- The Company routinely reviews its accounts   receivable by customer account aging to determine the collectibility of the   amounts due based on information received from the customer, past history and   economic conditions.  In doing so, the   Company adjusts the allowance accordingly to reflect the net realizable value   of an account receivable.                                                                                                                                                                                                                                                                                                              
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (l) | Fair Value   of Financial Instruments  The Companys financial instruments consists of cash, accounts   receivable, accounts payable, accrued expenses, notes payable and the line of   credit.  The carrying amounts of the   financial instruments reported in the consolidated balance sheet approximates   fair value based on the short-term maturity of these instruments.                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (m) | Advertising   Expense Advertising   expenses are expensed when incurred.    Advertising expense was $112,530 and $104,610 for the years ended   December 26, 2003 and December 27, 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (n) | Shipping   and Handling Costs    EHC bills their customers directly for shipping and handing costs.  The one exception to this is DSCP, where   the Company builds shipping and handling costs into the piece price and does   not bill directly for shipping and handling costs.  IPTs shipping and handling policy is customer driven.  The customer has the choice of building   the shipping and handling costs into the piece price of the product, being   billed separately for shipping and handling or to pay the carrier directly   for shipping and handling costs.    These amounts are all included in net sales.  All shipping and handling costs are expensed as incurred and   are included in cost of goods sold.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (o) | Cash and   Cash Equivalents For   purposes of the statement of cash flows, the Company considers all highly   liquid debt instruments with an original maturity of three months or less   when purchased to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (p) | Foreign   Currency Translation    The Company accounts for foreign currency transactions under SFAS No. 52   Foreign Currency Translation.  The   functional currency for the Companys foreign operations is the US dollar.  Revenue and expenses are translated at the   actual exchange rate when the transaction is completed.  Gains and losses for foreign transactions   were immaterial and are included in the Companys consolidated statements of   operations during the years ended December 26, 2003 and December 27, 2002.                                                                                                                                                                                        

F-10



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

|   | (q)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | RECENT   ACCOUNTING PRONOUNCEMENTS
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (i)      SFAS   No. 149           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (ii)     SFAS   No. 150           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (iii)    FIN   46                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                   
|5. | CONCENTRATION OF   CREDIT RISK AND   MAJOR CUSTOMERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Financial instruments that   potentially subject the Company to significant concentrations of credit risk   consist of cash and trade receivables. At times, the cash in any one bank   account may exceed the Federal Deposit Insurance Corporations $100,000 limit.   At December 26, 2003, the Company was over the insured limit by   $492,935.  The Company places its cash   with high credit quality financial institutions. In regards to trade   receivables, management believes the risk is limited due to the credit   assessment of its customers.

F-11



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

|   | The Company relies on   vendors from China for a significant amount of its manufacturing and   outsourcing capabilities. On December 11, 2001, China became a member of the   World Trade Organization.  As a result   of Chinas entry, industrial tariffs will be reduced, there will be an   increased liberalization regarding trade provisions and increases in service   and other reforms that China must adhere to in accordance with its membership   in the World Trade Organization.    Management is re-evaluating the impact on the Company from Chinas   membership in the World Trade Organization.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | During the years ended   December 26, 2003 and December 27, 2002, the United States government   accounted for approximately 58% and 58%, respectively of the Companys   sales.  The United States government   accounted for approximately 28% of the Companys outstanding accounts   receivable as of December 26, 2003.                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|6. | INVENTORIES, NET                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Inventories consist of the   following at December 26, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|Raw Materials                    |  | $ | 306,988   |  
|-------------------------------- |  | - | --------- | -
|Work in Process                  |  |   | 58,520    |  
|Finished Goods                   |  |   | 1,362,805 |  
|                                 |  |   |           |  
|                                 |  |   | 1,728,313 |  
|Less: reserve for   obsolescence |  |   | (158,492  | )
|                                 |  |   |           |  
|                                 |  | $ | 1,569,821 |  
|                                 |  |   |           |  

|7. | INVESTMENT AVAILABLE FOR SALE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | In August 2002, the Company   received 1,682,844 shares of common stock as a settlement for a note and   interest receivable. The note receivable was originally issued by another   company (the borrower) in July and August 1999. In February 2001, the   borrower declared bankruptcy under Chapter 11 of the Federal bankruptcy code.   The Company had fully reserved the note and interest receivable of $517,616.   On January 29, 2002, The Bankruptcy Court approved the borrowers Plan of   Reorganization, pursuant to which the Company received 1,682,844 shares of   the reorganized debtor common stock, which represents approximately 3 shares   for each dollar owed to the Company at the time of the filing of the   bankruptcy petition, or $517,616. The Company had previously valued these   shares at $.05 per share, and accordingly had recorded other income of   $84,142. The Company has since valued these marketable securities at $.01 per   share, and
accordingly has recorded an other than temporary decline in   available for sale security of $67,314 for the year ended December 26, 2003.

F-12



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

|8. | PROPERTY   AND EQUIPMENT                                                     
|-- | -----------------------------------------------------------------------------
|   |                                                                              
|   | Property and equipment are   comprised of the following at December 26, 2003:

|                                                  |  | Life |              |  |  
|------------------------------------------------- |  | ---- | ------------ |  | -
|                                                  |  |      |              |  |  
|Machinery and Equipment                           |  |      | 510   Years |  | $
|Tools, Dies and Molds                             |  |      | 510   Years |  |  
|Leasehold Improvements                            |  |      | 10   Years   |  |  
|Office Furniture and   Fixtures                   |  |      | 5   Years    |  |  
|                                                  |  |      |              |  |  
|                                                  |  |      |              |  |  
|Less: Accumulated   Depreciation and Amortization |  |      |              |  |  
|                                                  |  |      |              |  |  
|                                                  |  |      |              |  | $
|                                                  |  |      |              |  |  

|   | At December 26, 2003, the   Company had $148,320 of its property and equipment under capital leases, with   accumulated amortization of $70,029.    Depreciation and amortization expense for the years ended December 26,   2003 and December 27, 2002 were $185,977 and $200,897, respectively.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                  
|9. | CAPITAL LEASE   OBLIGATIONS                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                  
|   | The Company leases certain   equipment under various capital lease arrangements which have expirations   through March 2007. Following is a summary of future annual minimum payments   under capital leases:                                                                                    

|Year Ending December,                            |  |   |        | 
|------------------------------------------------ |  | - | ------ | 
|2004                                             |  | $ | 39,226 | 
|2005                                             |  |   | 26,020 | 
|2006                                             |  |   | 8,418  | 
|2007                                             |  |   | 102    | 
|                                                 |  |   |        | 
|                                                 |  |   | 73,766 | 
|Less: amounts representing   interest            |  |   | 18,769 | 
|                                                 |  |   |        | 
|Present value of lease   payments                |  |   | 54,997 | 
|Less: current portion                            |  |   | 29,452 | 
|                                                 |  |   |        | 
|Long-term portion of   capital lease obligations |  | $ | 25,545 | 
|                                                 |  |   |        | 

|10. | LINE   OF CREDIT                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | In April 2001, the Company   entered into a revolving line of credit agreement with a bank that provided   for maximum borrowing of up to $1,500,000, subject to certain conditions, at   an annual interest rate of prime plus 1.75%. The line of credit was secured   by substantially all the assets of the Company and was unconditionally   guaranteed by three officers/shareholders, each limited to $250,000.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The bank that provided the   Company with the above credit facility was closed by the Connecticut Banking   Department on June 27, 2002, with the F.D.I.C. assuming receivership of the   failed bank.                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On June 24, 2003, the   Company entered into an agreement with the F.D.I.C. to settle the loan at a   discounted amount of $897,150 plus accrued interest.  The Company repaid $902,773 on July 30,   2003, which resulted in a gain on extinguishment of debt of $100,000.  The Company received written confirmation   of its release and discharge from any further obligation to the F.D.I.C.                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                      

F-13



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

|    | On July 29, 2003, the   Company closed on a $1,500,000 Revolving Line of Credit (the line) with   Peoples Bank.  Under the line, the   Company is required to meet certain financial covenants.  The line matures May 31, 2004
and bears interest   at the Banks prime rate (4% at December 26, 2003) plus one percent (1%),   payable monthly.  The lines   availability varies based on the eligibility of accounts receivable and   inventory.  The loan is secured by   substantially all assets of the Company and $750,000 which is unconditionally   guaranteed by the three officers/shareholders, each limited to $250,000.  The outstanding balance of the line at   December 26, 2003 was $823,177.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | In February 2004, the   Company initiated discussions with Peoples Bank to renew the line of credit   due to mature on May 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|11. | LONG-TERM DEBT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Loans payable are comprised   of the following at December 26, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|(a) | Loan payable in monthly   installments of $2,903 of principal including interest at 7% per annum   through February 2007. The loan is guaranteed by the Companys three   officers/shareholders                                                                                                  |  | $ | 98,677  | 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | - | ------- | 
|(b) | Various loans payable to   officers/shareholders, all bearing interest at 10% per annum, payable in   monthly installments of $9,087 including interest.  There was a one year moratorium on principal repayments of   these loans through July 2003.  The   loans mature through September 2006 |  |   | 268,928 | 
|(c) | In December 2002 the Company   converted an outstanding payable to an outside consultant into a loan payable   with monthly installments of    $6,754.63 of principal including interest at 8% per annum through   February 1, 2004                                                              |  |   | 13,375  | 
|    |                                                                                                                                                                                                                                                                                                  |  |   |         | 
|    |                                                                                                                                                                                                                                                                                                  |  |   | 380,980 | 
|    | Less: current portion                                                                                                                                                                                                                                                                            |  |   | 128,267 | 
|    |                                                                                                                                                                                                                                                                                                  |  |   |         | 
|    | Long-term debt, net of   current portion                                                                                                                                                                                                                                                         |  | $ | 252,713 | 
|    |                                                                                                                                                                                                                                                                                                  |  |   |         | 

| | Long-term debt matures as   follows:
| | ------------------------------------

|Year ending   December, |  | Amount |        
|----------------------- |  | ------ | -------
|                        |  |        |        
|2004                    |  | $      | 195,951
|2005                    |  |        | 136,121
|2006                    |  |        | 43,153 
|2007                    |  |        | 5,755  
|                        |  |        |        
|                        |  | $      | 380,980
|                        |  |        |        

|12. | INCOME TAXES                                       
|--- | ---------------------------------------------------
|    |                                                    
|    | The   major tax-deferred asset items is as follows:

|                                   |  | December   26, 2003 |           
|---------------------------------- |  | ------------------- | ----------
|                                   |  |                     |           
|Net operating loss   carryforwards |  | $                   | 2,355,000 
|Less: valuation allowance          |  |                     | (2,355,000
|                                   |  |                     |           
|                                   |  | $                   |          
|                                   |  |                     |           

F-14



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

| | The provision for income   taxes for the year ended December 26, 2003 and December 27, 2002 consists of   the following:
| | ------------------------------------------------------------------------------------------------------------------------

|                                                      |  | For the   Years ended |    
|----------------------------------------------------- |  | --------------------- | ---
|                                                      |  |                       |    
|                                                      |  | December   26,   2003 |    
|                                                      |  |                       |    
|Income tax provision at 34%                           |  |                       | (34
|State and local income   taxes net of federal benefit |  |                       | (7 
|Effect of permanent   differences                     |  |                       | 7  
|Net operating losses not   utilized                   |  |                       | 34 
|                                                      |  |                       |    
|Total                                                 |  |                       | 0  
|                                                      |  |                       |    

|    | The Company has a net   operating loss carryforward for tax purposes totaling approximately   $5,800,000 at December 26, 2003 expiring between the years 2010 through 2021.   The Company utilized approximately $971,000 of their NOL for the year ended   December 26, 2003.  The resulting   deferred tax asset of approximately $2,355,000 has been offset by a   corresponding valuation allowance.                                                                                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|13. | RETIREMENT PLAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company sponsors a   401(k) savings plan covering all non-union employees who have attained the   age of 21 and have completed 3 months of service. Participants may contribute   up to 15% of their annual compensation, subject to certain limitations. In   addition, the Company may make contributions to the plan. During the years   ended December 26, 2003 and December 27, 2002, the Company did not make any   contributions to the plan.                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|14. | STOCK OPTION AND   GRANT PLANAND WARRANTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | In March 1998, the Company   adopted the Stock Option and Grant Plan (the Plan) which as amended in June   2000 provides for an aggregate grant of 1,000,000 options to purchase shares   of the Companys common stock. Options may be granted to employees, officers,   directors, consultants and independent contractors. Under the Plans, options   may be issued for periods up to 10 years and become exercisable in varying   amounts based on a vesting schedule. Generally, options are granted at prices   equal to market value on the date of the grant with lives of five years.                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | In August 2002, the Company   granted 523,000 stock options to key employees, consultants and members of   the board of directors at an exercise price of $2.15 per share.  The stock options vest on the second   anniversary of the individuals option agreement and expire on the fifth   anniversary of the agreement.  In   December 2002, the Company issued 16,450 shares of common stock to employees   and consultants. The Company recorded stock compensation of $74,025.  For the years ended December 26, 2003 and   December 27, 2002, the Company recorded an expense of $57,051 and $129,159,   respectively, for options granted to consultants that vested.                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | For disclosure purposes the   fair value of each stock option grant is estimated on the date of grant using   the Black-Scholes option-pricing model with the following weighted average   assumptions used for stock options granted during the year ended December 27,   2002: (i) annual dividends of $0.00, (ii) expected volatility of 89-200% for   the year ended December 27, 2002, (iii) risk-free interest rate of 5.7%, and   (iv) expected option
lives of three years for   the year ended December 27, 2002. The weighted average fair value of the   stock options granted for the years ended December 27, 2002 was $1.87.  No options were granted during the year   ended December 26, 2003.

F-15



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following tables illustrates   the Companys stock option and warrant issuances and balances outstanding as   of, and during the years ended December 26, 2003 and December 27, 2002,   restated for the aforementioned anti-dilution provisions related to the   Companys common stock warrants.

|                                   |  | OPTIONS                       |          | WARRANTS                              |  
|---------------------------------- |  | ----------------------------- | -------- | ------------------------------------- | -
|                                   |  |                               |          |                                       |  
|                                   |  | Shares   Underlying   Options |          | Weighted   Average   Exercise   Price |  
|                                   |  |                               |          |                                       |  
|Outstanding at December 28,   2001 |  |                               | 532,000  |                                       | $
|Granted                            |  |                               | 523,000  |                                       |  
|Cancelled                          |  |                               | (56,500  | )                                     |  
|Exercised                          |  |                               |         |                                       |  
|                                   |  |                               |          |                                       |  
|Outstanding at December 27,   2002 |  |                               | 998,500  |                                       | $
|Granted                            |  |                               |         |                                       |  
|Cancelled                          |  |                               | (154,000 | )                                     |  
|Exercised                          |  |                               |         |                                       |  
|                                   |  |                               |          |                                       |  
|Outstanding at December 26,   2003 |  |                               | 844,500  |                                       | $
|                                   |  |                               |          |                                       |  

| | In connection with the   Initial Public Offering, in 1999, the Company issued 1,800,193 redeemable   common stock purchase warrants at exercise prices ranging from $4.85 per   share to $6.91 per share.  The   warrants are redeemable by the Company upon thirty (30) days prior written   notice at the redemption price of $.10 per warrant, provided that the closing   bid price of the common stock on a national exchange has been in excess of   150% of the exercise price for any twenty (20) trading days within a period   of 30 consecutive trading days ending on the 15th day prior to the   date which the Company gives notice to redemption.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The following is additional   information with respect to the Companys options and warrants as of December   26, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|OPTIONS   OUTSTANDING |                  | OPTIONS   EXERCISABLE |                                          
|--------------------- | ---------------- | --------------------- | -----------------------------------------
|                      |                  |                       |                                          
|                      | Exercise   Price |                       | Number of   Shares   Underlying   Options
|                      |                  |                       |                                          
|                      | $ 2.50           |                       |                                          
|                      | $ 4.00           |                       |                                          
|                      | $ 4.50           |                       |                                          
|                      | $ 5.13           |                       |                                          
|                      | $ 2.15           |                       |                                          
|                      |                  |                       |                                          
|                      |                  |                       |                                          
|                      |                  |                       |                                          

F-16



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

|WARRANTS   OUTSTANDING AND EXERCISABLE |                 
|-------------------------------------- | ----------------
|                                       |                 
|                                       | Exercise   Price
|                                       |                 
|                                       | $3.00$3.50     
|                                       | $4.85$6.91     
|                                       |                 
|                                       |                 
|                                       |                 

|15. | COLLECTIVE BARGAINING   AGREEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Companys factory   employees and factory supervisors are represented by a collective bargaining   agreement between a local branch of a major national labor trade union and   the Company. Such agreement expires in May 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|16. | RELATED PARTY   TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|17. | CONSULTING AGREEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In March 1998, the Company   entered into a ten year consulting agreement in connection with the Companys   plans to develop manufacturing resources in the Peoples Republic of China   (China). The consultant, who was a board member of the Company at the time,   was paid at an hourly rate as mutually determined and agreed upon by the   Company and the consultant from time to time and 1.5% of the net cost, as   defined, of all products manufactured in China up to $5,000,000 per   year and 1% of net costs in excess of $5,000,000. The Company expensed   $18,106 in the year ended December 27, 2002, no expense was incurred during   the year ended December 26, 2003 under this consulting agreement.  On December 3, 2003, the consulting   agreement was terminated, however the Company will continue to pay the   commission of 1.5% or 1%, of the net cost, as defined.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|18. | PREFERRED STOCK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Board of Directors of   the Company is authorized, without further action of the shareholders of the   Company, to issue up to 1,000,000 shares of Preferred Stock in one or more   classes or series and to fix the
rights, preferences,   privileges and restrictions thereof, including dividend rights, conversion   rights, voting rights, terms of redemption, liquidation preferences, and the   number of shares constituting any series or the designation of such   series.  As of December 26, 2003,   there were no shares issued and outstanding.                                                                                                                                                                                                                                                                                                                                    

F-17



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|19. | SHAREHOLDERS AGREEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In March 1998, the Company   entered into an agreement with each of its three officers/shareholders which   provides that in the event of the death of the shareholder within 24 months   after the consummation of a public offering of the Companys stock, as   defined, the estate of the shareholder can require the Company to repurchase   250,000 shares of the shareholders stock for $500,000. The repurchase of   stock can only be made though the use of insurance proceeds payable to the   Company upon the death of the shareholder.    In September 2003, the Shareholders Agreement was amended, which   eliminated this provision.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|20. | SEGMENT   AND GEOGRAPHIC INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company views its   operations as principally two segments, the manufacturing and assembly of   injection molded plastic components and outsourcing of injection molded   plastic components and their assemblies. The segments share a common   workforce and office headquarters, which include an allocation of all   overhead components. Overhead items that are specifically identifiable to a   particular segment are applied to such segment. Information with respect to   foreign operations is not material.    The Companys segment information for the years ended December 26,   2003 and December 27, 2002 are as follows:        

|                                          |  | Distribution   and   Manufacturing |            | Outsourcing |   | Corporate   and   Other |   | Consolidated |         
|----------------------------------------- |  | ---------------------------------- | ---------- | ----------- | - | ----------------------- | - | ------------ | --------
|                                          |  |                                    |            |             |   |                         |   |              |         
|Year ended December 26, 2003              |  |                                    |            |             |   |                         |   |              |         
|Sales                                     |  | $                                  | 10,343,032 |             | $ | 2,350,306               |   | $            |        
|Interest   and other income               |  |                                    | 135,108    |             |   |                        |   |              |        
|Interest   and other expenses             |  |                                    | 107,028    |             |   | 33,047                  |   |              | 111,966 
|Depreciation   and amortization           |  |                                    | 117,551    |             |   | 53,834                  |   |              | 14,592  
|Segment   assets                          |  |                                    | 3,029,708  |             |   | 975,841                 |   |              | 95,140  
|Long-lived   asset expenditures           |  |                                    | 73,236     |             |   | 8,132                   |   |              |        
|Segment   income (loss)                   |  | $                                  | 1,755,487  |             | $ | (565,130                | ) | $            | (341,897
|                                          |  |                                    |            |             |   |                         |   |              |         
|                                          |  | Distribution   and   Manufacturing |            | Outsourcing |   | Corporate   and   Other |   | Consolidated |         
|                                          |  |                                    |            |             |   |                         |   |              |         
|Year ended December 27, 2002   (Restated) |  |                                    |            |             |   |                         |   |              |         
|Sales                                     |  | $                                  | 8,229,718  |             | $ | 2,227,632               |   | $            |        
|Interest   and other income               |  |                                    | 26,100     |             |   | 3,571                   |   |              | 84,142  
|Interest   and other expenses             |  |                                    | 183,084    |             |   | 9,770                   |   |              | 38,662  
|Depreciation   and amortization           |  |                                    | 136,797    |             |   | 49,508                  |   |              | 14,592  
|Segment   assets                          |  |                                    | 2,553,926  |             |   | 1,072,588               |   |              | 210,755 
|Long-lived   asset expenditures           |  |                                    | 33,227     |             |   | 2,108                   |   |              |        
|Segment   income (loss)                   |  | $                                  | 498,918    |             | $ | (626,770                | ) | $            | (245,581

F-18



INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements  CONTINUED

|21. | COMMITMENTS   AND CONTINGENCIES                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                    
|    | The Company leases office   space in Shanghai, China at a rental rate of US$6,265 per month. The lease is   for 24 monthly periods expiring on February 28, 2005.                  
|    |                                                                                                                                                                                    
|    | As discussed in Note 15,   the Company leases its premises from a related party.  In addition, the Company also has various   other operating leases for equipment and automobiles.
|    |                                                                                                                                                                                    
|    | Future annual minimum lease   payments are as follows:                                                                                                                             

|Fiscal Year   Ending in   December |  | Amount |          
|---------------------------------- |  | ------ | ---------
|                                   |  |        |          
|2004                               |  | $      | 266,672  
|2005                               |  |        | 276,260  
|2006                               |  |        | 282,296  
|2007                               |  |        | 288,500  
|                                   |  |        |          
|                                   |  | $      | 1,113,728
|                                   |  |        |          

|    | Total rent expense for the   years ended December 26, 2003 and December 27, 2002 was approximately   $270,000 and $265,000, respectively.                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                           
|    | The Company was named as a   defendant in six employment discrimination complaints, and on October 2002   settled these complaints for an aggregate amount of approximately $42,000.   The Company has paid $21,000 and accrued the balance of $21,000 as of   December 27, 2002. The balance of the money owed was paid in January, 2003.
|    |                                                                                                                                                                                                                                                                                                                                           
|22. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                           

F-19