** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

----

 

**FORM 10-Q**

 

**(Mark One)**

| **ý**                                         | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
|----------------------------------------------------|------------|----------------------------------------------------------------------------------------------|
|                                               |       |                                                                                         |
| **For the period from April 1, to June 30,  2004** |
|                                               |       |                                                                                         |
| **o**                                              | ** ** | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF  THE EXCHANGE ACT**                         |
|                                               |       |                                                                                         |
| **Commission File No. 0-31267**                    |

 

**IWTTESORO CORPORATION**

(ExactName of Small Business Issuer in Its Charter)

 

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

 

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

(Addressof principal executive offices)

 

**(203) 221-2770**

(Issuer’sTelephone Number, including area code)

 

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

 

Securities registered pursuant to Section12(b) of the Exchange Act:  **NONE**

Securities registered pursuant to Section12(g) of the Exchange Act: **Common Stock,$.001 Per Share**

 

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

ýYes             oNo

 

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

 

State the number of shares outstanding ofeach of the issuer’s class of common equity, as of August 12, 2004:  11,695,612 shares

 

Transitional Small Business DisclosureFormat:   oYes                  ýNo

 

 

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PART 1

 

ITEM 1:                             FINANCIALSTATEMENTS

 

**IWT TESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**SIX MONTHS ENDED JUNE 30, 2004**

 

 

 

**TABLE OF CONTENTS**

 

 
| Report of Independent Accountants                                                                                 |       |
|-------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                              | ** ** |
| **Consolidated Balance Sheets  June 30, 2004 (unaudited) and December 31, 2003**                                  | ** ** |
| ** **                                                                                                        | ** ** |
| Consolidated Statements of Operations for  the Six months ended June 30, 2004 and 2003 (unaudited)                |       |
|                                                                                                              |       |
| Consolidated Statements of Stockholders’  Equity for the Six months ended June 30, 2004 and 2003 (unaudited) |       |
|                                                                                                              |       |
| Consolidated Statements of Cash Flows for  the Six months ended June 30, 2004 and 2003 (unaudited)                |       |
|                                                                                                              |       |
| Notes to Consolidated Financial Statements  (unaudited)                                                           |       |

 

1

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**REPORTOF INDEPENDENT ACCOUNTANTS**

 

 

To the Board of Directors

IWT Tesoro Corporation

Westport, Connecticut

 

We have reviewed theaccompanying consolidated balance sheet of IWT Tesoro Corporation and itswholly-owned subsidiaries as of June 30, 2004 and 2003, and the relatedconsolidated statements of operations, stockholders’ equity, and cash flows forthe three month and six-month periods then ended.  These financial statements are theresponsibility of the Company’s management.

 

We conducted our review in accordancewith standards established by the Public Company Accounting Oversight Board(United States).  A review of interimfinancial information consists principally of applying analytical proceduresand making inquiries of persons responsible for financial and accountingmatters.  It is substantially less inscope than an audit conducted in accordance with the standards of the PublicCompany Accounting Oversight Board, the objective of which is the expression ofan opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such anopinion.

 

Based on our reviews, we arenot aware of any material modifications that should be made to the accompanyinginterim consolidated financial statements for them to be in conformity withU.S. generally accepted accounting principles.

 

 

KANTOR, SEWELL &OPPENHEIMER, PA

Certified Public Accountants

 

Hollywood, Florida

July 23, 2004

 

2

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**IWT TESORO CORPORATION ANDSUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

 

**Assets**

 
| ** **                  | ** ** | **June 30,  2004** | ** ** | **December 31,  2003  Restated** | ** ** |
|-----------------------------|------------|--------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **(Unaudited)**    | ** ** | **(Audited)**                    | ** ** |
| Current assets              |       |               |       |                             |       |
| Cash                        |       | $                  | 661,144    |                             | $          | 867,361 |   |
| Accounts receivable, net    |       | 7,322,910          |       | 4,907,705                        |       |
| Inventory                   |       | 15,427,926         |       | 13,058,839                       |       |
| Due from shareholder        |       | —             |       | 550,000                          |       |
| Deferred tax asset          |       | —             |       | 146,193                          |       |
| Prepaid expenses            |       | 1,059,825          |       | 754,289                          |       |
| Total current assets        |       | 24,471,805         |       | 20,284,387                       |       |
|                        |       |               |       |                             |       |
| Property and equipment, net |       | 5,271,853          |       | 4,217,268                        |       |
|                        |       |               |       |                             |       |
| Other assets                |       |               |       |                             |       |
| Deposits                    |       | 120,145            |       | 59,609                           |       |
| Deferred tax assets         |       | 76,972             |       | 101,205                          |       |
| Other receivables           |       | 113,473            |       | 69,370                           |       |
| Other assets                |       | 354,103            |       | 253,120                          |       |
|                        |       | 664,693            |       | 483,304                          |       |
|                        |       |               |       |                             |       |
|                        |       | $                  | 30,408,351 |                             | $          | 24,984,959 |   |

 

See notes to financial statements.

 

3

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**IWT TESORO CORPORATION ANDSUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

 

**Liabilities and Stockholders’ Equity**

 
| ** **                                                                                                       | ** ** | **June 30,  2004** | ** ** | **December 31,  2003  Restated** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|
| ** **                                                                                                       | ** ** | **(Unaudited)**    | ** ** | **(Audited)**                    | ** ** |
|                                                                                                             |       |               |       |                             |       |
| Current liabilities                                                                                              |       |               |       |                             |       |
| Accounts payable                                                                                                 |       | $                  | 12,092,307 |                             | $          | 9,859,161 |   |
| Accrued expenses                                                                                                 |       | 209,644            |       | 137,292                          |       |
| Deferred tax liability                                                                                           |       | 13,768             |       | —                           |       |
| Current portion of lease payable                                                                                 |       | 34,106             |       | 63,151                           |       |
| Current portion of notes payable -  unrelated parties                                                            |       | 34,458             |       | 42,719                           |       |
| Total current liabilities                                                                                        |       | 12,384,283         |       | 10,102,323                       |       |
|                                                                                                             |       |               |       |                             |       |
| Deferred tax liability - non current                                                                             |       | —             |       | 148,594                          |       |
| Long term lease payable                                                                                          |       | 156,835            |       | 149,183                          |       |
| Long term notes payable - related parties                                                                        |       | 338,662            |       | 338,662                          |       |
| Long term notes payable - unrelated parties                                                                      |       | 47,959             |       | 42,560                           |       |
| Long term loan payable                                                                                           |       | 12,411,294         |       | 9,599,340                        |       |
|                                                                                                             |       | 12,954,750         |       | 10,278,339                       |       |
|                                                                                                             |       |               |       |                             |       |
| Stockholders’ equity                                                                                        |       |               |       |                             |       |
| Preferred stock, $0.001 par value,  25,000,000 authorized; none issued                                           |       | —             |       | —                           |       |
| Common stock, $0.001 par value, 100 million  shares authorized, 11,695,102 and 11,622,702 issued and outstanding |       | 11,695             |       | 11,623                           |       |
| Additional paid in capital                                                                                       |       | 4,594,256          |       | 4,306,153                        |       |
| Additional paid in capital - outstanding  options                                                                |       | 666,667            |       | 666,667                          |       |
| Accumulated deficit                                                                                              |       | (203,300           | )          | (380,146                         | )          |
|                                                                                                             |       | 5,069,318          |       | 4,604,297                        |       |
|                                                                                                             |       |               |       |                             |       |
|                                                                                                             |       | $                  | 30,408,351 |                             | $          | 24,984,959 |   |

 

See notes to financial statements.

 

4

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**IWT TESORO CORPORATION ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)**

 
| ** **                             | ** ** | **For the period ended June 30,** | ** ** |
|----------------------------------------|------------|-----------------------------------|------------|
| ** **                             | ** ** | **Three months ended**            | ** ** | **Six months ended** | ** ** |
| ** **                             | ** ** | **2004**                          | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                   |       |                              |       |   |   |   |   |   |   |
| Revenue                                |       |                              |       |   |   |   |   |   |   |
|                                   |       |                              |       |   |   |   |   |   |   |
| Sales, net of discounts and returns    |       | $                                 | 11,616,257 |   | $ | 8,504,860 |   | $ | 21,172,404 |   | $ | 15,239,624 |   |
| Cost of goods sold                     |       | 7,144,406                         |       | 5,012,000 |   | 12,954,820 |   | 9,091,608 |   |
|                                   |       |                              |       |   |   |   |   |   |   |
| Gross profit                           |       | 4,471,851                         |       | 3,492,860 |   | 8,217,584 |   | 6,148,016 |   |
|                                   |       |                              |       |   |   |   |   |   |   |
| Expenses                               |       |                              |       |   |   |   |   |   |   |
| Payroll                                |       | 1,736,098                         |       | 1,248,358 |   | 3,344,143 |   | 2,431,763 |   |
| Delivery                               |       | 535,117                           |       | 413,074 |   | 1,093,739 |   | 749,119 |   |
| Lease expenses                         |       | 390,810                           |       | 198,254 |   | 753,738 |   | 332,634 |   |
| Depreciation and amortization          |       | 236,138                           |       | 158,603 |   | 450,638 |   | 295,127 |   |
| General and administrative             |       | 276,862                           |       | 188,331 |   | 547,149 |   | 334,902 |   |
| Insurance                              |       | 209,284                           |       | 85,138 |   | 369,882 |   | 159,966 |   |
| Sales expenses                         |       | 245,989                           |       | 147,041 |   | 445,551 |   | 229,300 |   |
| Bad debts                              |       | 22,598                            |       | 50,570 |   | 45,209 |   | 53,817 |   |
| Repairs and maintenance                |       | 129,837                           |       | 87,808 |   | 230,522 |   | 170,293 |   |
| Advertising                            |       | 58,006                            |       | 19,050 |   | 151,763 |   | 40,925 |   |
| Travel and entertainment               |       | 88,535                            |       | 75,653 |   | 177,142 |   | 130,112 |   |
| Professional fees                      |       | 81,455                            |       | 113,795 |   | 164,561 |   | 237,742 |   |
|                                   |       | 4,010,729                         |       | 2,785,675 |   | 7,774,037 |   | 5,165,700 |   |
| Income from operations                 |       | 461,122                           |       | 707,185 |   | 443,547 |   | 982,316 |   |
|                                   |       |                              |       |   |   |   |   |   |   |
| Other income/(expenses)                |       |                              |       |   |   |   |   |   |   |
| Interest expense                       |       | (139,111                          | )          | (98,632 | ) | (261,377 | ) | (174,581 | ) |
| Other income (expense), net            |       | 23,823                            |       | (4,617 | ) | 30,276 |   | (9,135 | ) |
|                                   |       | (115,288                          | )          | (103,249 | ) | (231,101 | ) | (183,716 | ) |
|                                   |       |                              |       |   |   |   |   |   |   |
| Income before taxes                    |       | 345,834                           |       | 603,936 |   | 212,446 |   | 798,600 |   |
|                                   |       |                              |       |   |   |   |   |   |   |
| Income tax (expense) benefit- deferred |       | 84,400                            |       | (32,000 | ) | (35,600 | ) | (64,000 | ) |
| Income tax - current                   |       | —                            |       | (65,000 | ) | — |   | (65,000 | ) |
|                                   |       |                              |       |   |   |   |   |   |   |
| Net income                             |       | $                                 | 430,234    |   | $ | 506,936 |   | $ | 176,846 |   | $ | 669,600 |   |
|                                   |       |                              |       |   |   |   |   |   |   |
| Earnings per share - basic             |       | $                                 | 0.04       |   | $ | 0.05 |   | $ | 0.02 |   | $ | 0.06 |   |
|                                   |       |                              |       |   |   |   |   |   |   |
| Earnings per share - diluted           |       | $                                 | 0.04       |   | $ | 0.04 |   | $ | 0.01 |   | $ | 0.06 |   |

 

See notes to financial statements.

 

5

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**

**SIX MONTHS ENDED JUNE 30, 2003**

**(UNAUDITED)**

 
| ** **                                                                 | ** ** | **Common Stock** | ** ** | **Additional  Paid in** | ** ** | **Subscription** | ** ** | **Retained  Earnings** | ** ** | ** **    | ** ** |
|----------------------------------------------------------------------------|------------|------------------|------------|-------------------------|------------|------------------|------------|------------------------|------------|---------------|------------|
| ** **                                                                 | ** ** | **Shares**       | ** ** | **Amount**              | ** ** | **Capital**      | ** ** | **Receivable**         | ** ** | **(Deficit)** | ** ** | **TOTAL** | ** ** |
| Balance, January 1, 2003                                                   |       | 10,587,834       |       | $                       | 10,588     |             | $          | 686,068                |       | $             | —     |   | $ | (184,740 | ) | $ | 511,916 |   |
|                                                                       |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Issuance of shares  - private offering                                |       | 136,668          |       | 136                     |       | 409,864          |       | —                 |       | —        |       | 410,000 |   |
|                                                                       |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Exercise of warrants ($3.00)                                               |       | 10,000           |       | 10                      |       | 29,990           |       | —                 |       | —        |       | 30,000 |   |
|                                                                       |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Issuance of shares to employees and  directors for services rendered (SIP) |       | 21,000           |       | 21                      |       | 56,889           |       | —                 |       | —        |       | 56,910 |   |
|                                                                       |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Issuance of shares - public offering                                       |       | 3,750            |       | 4                       |       | 20,621           |       | —                 |       | —        |       | 20,625 |   |
|                                                                       |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Cancellation of stock repurchase agreement                                 |       | 450,000          |       | 450                     |       | 1,072,710        |       | —                 |       | —        |       | 1,073,160 |   |
|                                                                       |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Net income                                                                 |       |             |       |                    |       |             |       |                   |       | 669,600       |       | 669,600 |   |
|                                                                       |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Balance, June 30, 2003 (Unaudited)                                         |       | 11,209,252       |       | $                       | 11,209     |             | $          | 2,276,142              |       | $             | —     |   | $ | 484,860 |   | $ | 2,772,211 |   |

 

See accompanying notes to financial statements.

 

6

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY**

**SIX MONTHS ENDED JUNE 30, 2004**

**(UNAUDITED)**

 
| ** **                                                             | ** ** | ** **       | ** ** | ** **              | ** ** | ** **                       | ** ** | **Additional**         | ** ** | ** **    | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|------------------|------------|-------------------------|------------|----------------------------------|------------|------------------------|------------|---------------|------------|------------|------------|
| ** **                                                             | ** ** | **Common Stock** | ** ** | **Additional  Paid in** | ** ** | **Paid in Capital  Outstanding** | ** ** | **Retained  Earnings** | ** ** | ** **    | ** ** |
| ** **                                                             | ** ** | **Shares**       | ** ** | **Amount**              | ** ** | **Capital**                      | ** ** | **Options**            | ** ** | **(Deficit)** | ** ** | **TOTAL**  | ** ** |
| Balance, January 1, 2004, as restated                                  |       | 11,622,702       |       | $                       | 11,623     |                             | $          | 4,306,153              |       | 666,667       |       | $          | (380,146   | ) | $ | 4,604,297 |   |
|                                                                   |       |             |       |                    |       |                             |       |                   |       |          |       |       |       |
| Exercise of warrants ($3.25)                                           |       | 45,500           |       | 45                      |       | 147,830                          |       | —                 |       | —        |       | 147,875    |       |
|                                                                   |       |             |       |                    |       |                             |       |                   |       |          |       |       |       |
| Issuance of shares to consultants for  services rendered  ($5.99) |       | 15,000           |       | 15                      |       | 89,835                           |       | —                 |       | —        |       | 89,850     |       |
|                                                                   |       |             |       |                    |       |                             |       |                   |       |          |       |       |       |
| Issuance of shares to director                                         |       | 10,000           |       | 10                      |       | 42,490                           |       | —                 |       | —        |       | 42,500     |       |
|                                                                   |       |             |       |                    |       |                             |       |                   |       |          |       |       |       |
| Issuance of shares to consultants for  services rendered  ($4.25) |       | 2,000            |       | 2                       |       | 8,498                            |       | —                 |       | —        |       | 8,500      |       |
|                                                                   |       |             |       |                    |       |                             |       |                   |       |          |       |       |       |
| Canceled shares                                                        |       | (100             | )          | —                  |       | (550                             | )          | —                 |       | —        |       | (550       | )          |
|                                                                   |       |             |       |                    |       |                             |       |                   |       |          |       |       |       |
| Net income                                                             |       |             |       |                    |       |                             |       |                   |       | 176,846       |       | 176,846    |       |
|                                                                   |       |             |       |                    |       |                             |       |                   |       |          |       |       |       |
| Balance, June 30, 2004 (Unaudited)                                     |       | 11,695,102       |       | $                       | 11,695     |                             | $          | 4,594,256              |       | $             | 666,667    |       | $          | (203,300 | ) | $ | 5,069,318 |   |
|                                                                        |            |                  |            |                         |            |                                  |            |                        |            |               |            |            |            |  |  |  |  |  |

 

See accompanying notes to financial statements.

 

7

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                     | ** ** | **Six months ended June 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                     | ** ** | **2004**                      | ** ** | **2003** | ** ** |
|                                                                           |       |                          |       |   |   |
| Cash flows from operating activities:                                          |       |                          |       |   |   |
| Net Income                                                                     |       | $                             | 176,846    |   | $ | 669,600 |   |
|                                                                           |       |                          |       |   |   |
| Adjustments to reconcile net income to net  cash used in operating activities: |       |                          |       |   |   |
| Depreciation                                                                   |       | 450,638                       |       | 295,127 |   |
| (Gain) loss on asset disposal                                                  |       | 21,533                        |       | 5,352 |   |
| Deferred taxes                                                                 |       | 35,600                        |       | — |   |
| Compensation in exchange for stock                                             |       | 140,300                       |       | — |   |
| Bad debt                                                                       |       | 45,209                        |       | 53,817 |   |
| (Increase) decrease in operating assets                                        |       |                          |       |   |   |
| Accounts receivable                                                            |       | (2,460,414                    | )          | (1,707,843 | ) |
| Inventory                                                                      |       | (2,369,087                    | )          | (4,874,201 | ) |
| Prepaid expenses                                                               |       | (305,536                      | )          | (44,440 | ) |
| Other assets                                                                   |       | (247,134                      | )          | 33,339 |   |
| Increase (decrease) in operating  liabilities                                  |       |                          |       |   |   |
| Accounts payable and accrued expenses                                          |       | 2,299,162                     |       | 3,797,846 |   |
| Other liabilities                                                              |       | 6,335                         |       | 39,735 |   |
| Total adjustments                                                              |       | (2,383,394                    | )          | (2,401,268 | ) |
| Net cash used in operating activities                                          |       | (2,206,548                    | )          | (1,731,668 | ) |
|                                                                           |       |                          |       |   |   |
| Cash flows from investing activities:                                          |       |                          |       |   |   |
|    Proceeds from sale of equipment                                   |       | 25,000                        |       | — |   |
| Acquisition of property and equipment                                          |       |                          |       |   |   |
| Displays and sample boards                                                     |       | (987,934                      | )          | (536,773 | ) |
| Other property and equipment                                                   |       | (473,214                      | )          | (766,399 | ) |
| Net cash used in investing activities                                          |       | (1,436,148                    | )          | (1,303,172 | ) |
|                                                                           |       |                          |       |   |   |
| Cash flows from financing activities:                                          |       |                          |       |   |   |
| Proceeds from loans from related party                                         |       | —                        |       | 10,640 |   |
| Proceeds from issuance of stocks                                               |       | 697,875                       |       | 460,625 |   |
| Proceeds from new borrowings                                                   |       | 21,330,000                    |       | 16,228,000 |   |
| Payments to stockholder loans                                                  |       | —                        |       | (110,050 | ) |
| Payments on new borrowings                                                     |       | (18,518,046                   | )          | (13,782,136 | )  |
| Principal payment on notes payable and  capital leases                         |       | (73,350                       | )          | (27,553 | ) |
| Net cash provided by financing activities                                      |       | 3,436,479                     |       | 2,779,526 |   |
|                                                                           |       |                          |       |   |   |
| Net decrease in cash and cash equivalents                                      |       | (206,217                      | )          | (255,314 | ) |
|                                                                           |       |                          |       |   |   |
| Cash and cash equivalents, beginning of  period                                |       | 867,361                       |       | 574,046 |   |
|                                                                           |       |                          |       |   |   |
| Cash and cash equivalents, end of period                                       |       | $                             | 661,144    |   | $ | 318,732 |   |
|                                                                           |       |                          |       |   |   |
| Supplemental disclosures of cash flow  information:                            |       |                          |       |   |   |
|                                                                           |       |                          |       |   |   |
| Cash paid during the period for:                                               |       |                          |       |   |   |
|                                                                           |       |                          |       |   |   |
| Interest expense                                                               |       | $                             | 261,377    |   | $ | 174,581 |   |

 

See notes to financial statements.

 

8

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**SIX MONTHS ENDED JUNE 30, 2004**

 

 

**NOTE 1****                            PRINCIPLESOF CONSOLIDATION**

 

The accompanying consolidatedfinancial statements include the accounts of the Company and its wholly ownedsubsidiaries, International Wholesale Tile, Inc. (IWT), IWT TesoroInternational, Inc. (International), IWT Tesoro Transport, Inc. (Transport) andThe Tile Club, Inc. (TCI), (collectively the “Company”).  All significant inter-company balances andtransactions have been eliminated.

 

 

**NOTE 2****                            BASISOF PRESENTATION**

 

The interim financialinformation included herein is unaudited; however, such information reflectsall adjustments which are, in the opinion of management, necessary for a fairpresentation of the Company’s financial position, results of operations,changes in stockholders’ equity and cash flows for the interim periods.  All such adjustments are of a normal,recurring nature.  The results ofoperations for the first six months of the year are not necessarily indicativeof the results of operations which might be expected for the entire year.

 

The accompanying consolidatedfinancial statements of the Company have been prepared in accordance with theinstructions to Form 10-Q and, therefore, omit or condense certain footnotesand other information normally included in financial statements prepared inaccordance with generally accepted accounting principles.  It is suggested that these condensedfinancial statements should be read in conjunction with the Company’s financialstatements and notes thereto included in the Company’s audited financialstatements on Form 10-K for the fiscal year ended December 31, 2003.

 

 

**NOTE 3****                            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Stock Options

The Company accounts for stockoptions under the provisions of Accounting Principles Board Opinion (APB) No.25 *Accounting ForStock Issued to Employees* and related interpretations.  Accounting for the issuance of stock optionsunder the provisions of APB No. 25 typically does not result in compensationexpense for the Company since the exercise price of options is normallyestablished at the market price of the Company’s common stock on the dategranted.  Statement of FinancialAccounting Standards (SFAS) No. 123 *Accountingfor Stock-Based Compensation* provides that the related expense maybe recorded in the basic financial statements or the pro forma effect onearnings may be disclosed in the financial statements.

 

A total of 50,000 options weregranted to directors of the Company during the six months ended June 30,2004.   No options were granted duringthe six months ended June 30, 2003.

 

9

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Theeffect on net income (loss) and earnings per share if the Company had appliedthe fair value recognition provision of the SFAS No. 123,consisted of the following:

 
| ** **                                                                                                                    | ** ** | **Six months ended  June 30, 2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
|                                                                                                                          |       |                                |       |
| Net loss as reported                                                                                                          |       | $                                   | 176,846    |   |
| Plus total stock-based  compensation cost, net of related tax effects, included in the determination  of net loss as reported |       | 42,500                              |       |
|                                                                                                                          |       |                                |       |
| Less stock-based compensation  cost, net of related tax effects, determined under fair value based method  for all awards     |       | (97,063                             | )          |
|                                                                                                                          |       |                                |       |
| Pro-forma net loss                                                                                                            |       | $                                   | 122,283    |   |
|                                                                                                                          |       |                                |       |
| Basic earnings per share                                                                                                      |       |                                |       |
| As reported                                                                                                                   |       | $                                   | 0.02       |   |
| Pro-forma                                                                                                                     |       | $                                   | 0.01       |   |
|                                                                                                                          |       |                                |       |
| Diluted earnings per share                                                                                                    |       |                                |       |
| As reported                                                                                                                   |       | $                                   | 0.02       |   |
| Pro-forma                                                                                                                     |       | $                                   | 0.01       |   |

 

For the pro forma net losscalculation in the preceding table, the fair value of each option on the dateof grant was estimated using the Black-Scholes option-pricing model and thefollowing assumptions for awards in 2004: dividend yields of .0 percent;expected volatility of 21.51 percent; risk-free interest rates of 2.20 percent;and expected lives of five years.  Usingthese assumptions, the weighted average grant-date fair value per share ofoptions granted in 2004 was $1.21.

 

Recent Accounting Pronouncements

In December 2002, the FinancialAccounting Standards Board (FASB) issued SFAS No. 148, *Accounting for Stock-Based Compensation – Transitionand Disclosure,* which provides alternative methods of transition fora voluntary change to the fair value based method ofaccounting for stock-based employee compensation as prescribed in SFAS No. 123.Additionally, SFAS No. 148 requires more prominent and more frequentdisclosures in financial statements about the effects of stock-basedcompensation. The provisions of this Statement are effective for fiscal yearsending after December 15, 2002. Management does not expect the adoption of this Statement to have amaterial impact on the Company’s financial condition or results of operations.

 

Earnings perShare

Basic earnings per share arecomputed based on the weighted average number of common shares outstandingduring each year.  Diluted earnings pershare are computed based on the weighted average number of common sharesoutstanding plus all potential dilutive common shares outstanding (stock options)during each year.

 

10

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**NOTE 4****                            INVENTORIES**

 

Inventories consisted of thefollowing:

 

| ** **           | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|----------------------|------------|--------------------|------------|------------------------|------------|
|                 |       |               |       |                   |       |
| Tiles                |       | $                  | 13,567,305 |                   | $          | 11,102,115 |   |
| Inventory in transit |       | 1,860,621          |       | 1,956,724              |       |
|                 |       |               |       |                   |       |
|                 |       | $                  | 15,427,926 |                   | $          | 13,058,839 |   |

 

Inventory in transit consistsof merchandise purchased overseas, which is not yet received in thewarehouse.  The Company obtains legaltitle at the shipping point.  Inventorycost includes the purchase price and in-bound freight.

 

 

**NOTE 5****                            DEPOSITON EXCLUSIVE AGREEMENT**

 

DuringFebruary 2004, the Company entered into an agreement with an Italian supplierto develop an exclusive line of tile. The agreement required a deposit of $550,000, and the initial shipmentis anticipated in July 2004.

 

 

**NOTE 6****                            PROPERTY AND EQUIPMENT**

 

Property and equipmentconsisted of the following:

 

| ** **                    | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------|------------|--------------------|------------|------------------------|------------|
|                          |       |               |       |                   |       |
| Furniture and fixtures        |       | $                  | 397,100    |                   | $          | 313,965 |   |
| Machinery and equipment       |       | 520,976            |       | 477,996                |       |
| Vehicles                      |       | 214,942            |       | 211,215                |       |
| Display boards                |       | 1,629,758          |       | 1,098,199              |       |
| Sample boards                 |       | 3,470,426          |       | 3,013,950              |       |
| Computer equipment            |       | 350,984            |       | 323,010                |       |
| Leasehold improvements        |       | 698,466            |       | 409,125                |       |
|                          |       |               |       |                   |       |
|                          |       | 7,282,652          |       | 5,847,460              |       |
| Less accumulated depreciation |       | (2,010,799         | )          | (1,630,192             | )          |
|                          |       |               |       |                   |       |
|                          |       | $                  | 5,271,853  |                   | $          | 4,217,268 |   |

 

Depreciation expense for thesix months ended June 30, 2004 and 2003 was $450,638 and $295,127,respectively.

 

11

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**NOTE 7****                            LOANSPAYABLE**

 

TheCompany has a loan and security agreement with a financial institution for arevolving line of credit with a maximum limit of $17,000,000.  The agreement specifies that proceeds fromthis revolving credit loan be used for general working capital needs.  All present and future assets of the Companycollateralize this loan. The rate of interest in effect for this agreement iscalculated with reference to the Base Rate and/or LIBOR (London InterbankOffered Rate).  The balance due at June30, 2004 and December 31, 2003 was $12,411,294 and $9,599,340, respectively.

 

BaseRate advances bear a fluctuating interest rate per annum equal to prime plus0.50%.  LIBOR advances bear a fixed rateper annum equal to 3.00% plus the LIBOR for the applicable interest period.  At June 30, 2004, the Base Rate and the LIBORrate were 4.50% and 4.59%, respectively.

 

Theloan and security agreement contains certain covenants, which include financialcovenants that require the Company to maintain a certain leverage ratio, arequired minimum fixed charge coverage ratio, and a certain inventory turnoverratio.  At June 30, 2004, the Company isin compliance with the covenants set forth with the financial institution.

 

For the six months ended June30, 2004 and 2003, interest expense related to the credit lines amounted to $257,987 and $143,534, respectively.

 

 

**NOTE 8****                            STOCKHOLDERS’EQUITY**

 

Common Stock

During the six months endedJune 30, 2004, the Company issued 45,500 shares of common stock pursuant towarrants exercised at $3.25 per share, for a total of $147,875.

 

During the six months endedJune 30, 2004, the Company issued 17,000 shares of common stock to consultantsfor services rendered, based on the trading price at the date of issuance, fora total of $98,350, resulting in an immediate charge to operations.

 

On May 26, 2004, the Companyissued 10,000 shares of common stock to a director under the Stock IncentivePlan for services rendered, based on the contemporaneous trading price, for atotal of $42,500, resulting in an immediate charge to operations.

 

InMarch 2004, the Company received $550,000 as full payment on a subscriptionreceivable outstanding at December 2003.

 

12

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**NOTE 9****                            SEGMENTINFORMATION**

 

TheCompany manages its operations as one segment and all revenue is derived fromcustomers in the United States.

 

 

**NOTE 10****                     NEW SUBSIDIARY**

 

Subsequentto the fiscal quarter ended March 31, 2004, the Company organized The TileClub, Inc. (TCI).  TCI will license thedistribution rights to designer and artistic based decorative wall tiles.

 

 

**NOTE 11****                     RESTATEMENTS**

 

TheCompany will restate the consolidated balance sheet at December 31, 2003 andthe consolidated statements of operations, stockholders’ equity and cash flowsfor the year then ended.  The restatementis being made to reflect the proper accounting in accordance with accountingprinciples generally accepted in the United States in connection with optionsgranted to four executive officers and to reflect the impairment of certainsample boards identified as a result of additional auditing procedures.

 

Theeffect on the financial statements of the Company is as follows:

 
| ** **                                            | ** ** | **As Restated** | ** ** | **As Originally  Reported** | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|-----------------------------|------------|
|                                                  |       |            |       |                        |       |
| Accumulated deficit – December 31, 2002          |       | $               | (184,740   | )                           | $          | (184,740 | ) |
| Net Income (Loss)                                     |       | (195,406        | )          | 436,305                     |       |
|                                                  |       |            |       |                        |       |
| Retained Earnings (Deficit) – December 31,  2003 |       | $               | (380,146   | )                           | $          | 251,565 |   |

 

13

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ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The followingdiscussion should be read along with our financial statements, which areincluded in another section of this filing.

* *

*Forward Looking Statements*

 

 Some of the statementsmade constitute “forward-looking statements”. For example, statements includedin this prospectus regarding our financial position, business strategy andother plans and objectives for future operations, and assumptions andpredictions about future demand for our services and products, supply, costs,marketing and pricing factors are all forward-looking statements. When we usewords like “intend,” “anticipate,” “believe,” “estimate,” “plan” or “expect,”we are making forward- looking statements. These forward-looking statements are subject to risks and uncertaintiesand other factors that may cause our actual results, performance orachievements to be materially different from the results, performance orachievements expressed or implied by the forward-looking statements. You shouldnot unduly rely on these statements. Forward-looking statements involveassumptions and describe our plans, strategies, and expectations. This reportcontains forward-looking statements that address, among other things,

 

•our business and financing plans;

•regulatory environments in which we operateor plan to operate; and

•trends affecting our financial condition orresults of operations, the impact of competition, the start-up of certainoperations, roll out of products and services and acquisition opportunities.

 

Factors, risks, anduncertainties that could cause actual results to differ materially from thosein the forward-looking statements (Cautionary Statements) include, amongothers,

 

•our ability to raise capital;

•our ability to continue distributing ourproducts;

•our ability to provide our products atcompetitive rates;

•our ability to execute our business strategyin a competitive environment;

•our degree of financial leverage;

•regulatory considerations and risks relatedto international economics,

•risks related to market acceptance and demandfor our products and services;

•our dependence on third party suppliers;

•the impact of competitive services; and

•other risks referenced from time to time inour SEC filings.

 

We believe that theassumptions and expectations reflected in this prospectus arereasonable, based on information available to us in this report.  However, we cannot assure anyone that theseassumptions and expectations will prove to have been correct or that we willtake any action that we may presently be planning. We assume no obligation toupdate forward-looking statements or reflect unanticipated future events.

 

**General**

 

We were incorporated on May 5,2000 as a Nevada corporation.  Ourprincipal office is located at 191 Post Road West, Suite 10, Westport, CT06880.  Any reference in this“Management’s Discussion and Analysis or Plan of Operations” discussion to “thecompany”, “our”, “we” or “us” refers to Tesoro.

 

Effective October 1, 2002, weacquired International Wholesale Tile, Inc. (IWT) through a share exchange andIWT became our wholly owned subsidiary. We issued nine million shares of our common stock in exchange for all ofthe IWT shares.  Tesoro has threeadditional wholly owned subsidiaries. The first is IWT Tesoro International, Ltd., which was created to ownand manage assets relating to any of the Company’s potential future overseasactivities.  The second is IWT Transport,Inc., organized to handle our domestic freight operations.  The Tile Club, Inc., organized in 2004, wasorganized to acquire licensing, manufacturing and distribution rights forhigh-end designer and artistic based decorative tiles.

 

**CompanyOverview**

 

The Company is a value addeddistributor of imported ceramic, porcelain and stone flooring and decorativewall tile.  Our warehousing and distributioncenter contains over 220,000 square feet of storage space and over sevenmillion square feet of product ready for immediate shipment to ourcustomers.  The company’s primarystrategy is to be a reliable supplier not a competitor to its customers.

 

Management believes that thecritical success factors to the Company’s business are its ability to:

 

14

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•                  Maintainrelationships with and serve a growing base of independent dealers,distributors and wholesalers by providing adequate stocks of in demand productat reasonable and competitive prices

•                  Stay ahead ofthe trends in color, texture and format the drive demand for our fashion basedproducts

•                  Make the correctinvestments in product inventories, relationships with suppliers and logisticssupport services to ensure our continuing capability to meet our customer’sexpectations

 

Our primary source of revenueis the sale of hard flooring and wall covering materials and our primary costsrelate to the acquisition, sales and delivery of those products.  While sales are made throughout the UnitedStates, to date the majority of our sales are in the southeastern quadrant ofthe country.  The primary sources ofworking capital are a $ 17 million (US) revolving line of credit from adivision of a large US commercial bank, our suppliers who extend us terms andour stockholders equity.

 

On December 17, 2003 we begantrading our stock on the OTCBB under the symbol IWTT.  During 2004, we expect to raise additionalequity through the public market.  Anynew equity raised will be used to strengthen our balance sheet and to providecapital for continued growth.

** **

During the quarter ended June30, 2004, the Company continued to expand its distribution channels beyond itstraditional small and mid sized floor covering dealers in the southeasternUnited States. These new channels included larger regional distributors outsidethe southeastern United States, home center stores and floor-covering dealersthat focus on the builders of new construction units.

 

*Results of Operations for the Quarters ending June 30, 2002,2003 and 2004.*

 

The following discussion andanalysis should be read in conjunction with the financial statements and notesthereto that appear elsewhere in this document. The table below sets forthcertain operating data as, with gross margins as a percentage of total revenuefor the periods indicated.

 
| ** **              | ** ** | **Quarter Ending June 30,** | ** ** |
|-------------------------|------------|-----------------------------|------------|
| ** **              | ** ** | **2002**                    | ** ** | **2003** | ** ** | **2004** | ** ** |
|                    |       |                        |       |   |   |   |   |
| Revenues                |       | $                           | 6,803,466  |   | $ | 8,504,860 |   | $ | 11,616,257 |   |
| Cost of Goods Sold      |       | 4,193,483                   |       | 5,012,000 |   | 7,144,406 |   |
| Gross Margin            |       | 2,609,983                   |       | 3,492,860 |   | 4,471,851 |   |
| Gross Margin Percentage |       | 38.36                       | %          | 41.07 | % | 38.50 | % |
| Operating Expenses      |       | 1,972,281                   |       | 2,785,675 |   | 4,010,729 |   |
|                         |            |                             |            |  |  |  |  |  |  |  |

 

*Quarter ended June 30, 2004 Compared to Quarter Ended June30, 2003*

 

Sales for the quarter endedJune 30,2004 were $11,616,257, a 36% increase oversales for the quarter ended June 30, 2003. This growth follows a 25% growthfrom 2002 to 2003. We are a relatively small player in a growing market. We areentering new markets and adding new products; therefore, we expect to be ableto grow faster than the market as a whole for the next several years. Our shareof this market is approximately 1.5%. The tile market in the United States is approximately $2.5 billionand is growing at a seven to ten percent rate.

 

As we grow, we have beenable to purchase product at lower prices and have consequently lowered our costof goods to 60% for the year ended December 2003, from 60% in 2002 and 64% in2002.  While there are certainly finitelimits to improving our gross margin percentage, it is imperative that wemaintain these ratios as we grow.  Thegross margin for the quarter ended June 30, 2004 was $4,471,850, a 28% increaseover gross margin for the quarter ended June 30, 2003.  This increase in gross margin resultedprimarily from the increase in sales, somewhat offset by a slight increase inour cost of goods to 61.5% ending June 30, 2004.

 

Our operating expenses for the quarter endedJune 30, 2004 have increased by $1,225,054 over the same period in 2003.  Our commissions and outbound freight costsvary with sales and represent approximately $310,000 of this increase.  The balance of the cost increase relates tothe expansion of our distribution channels to include home center stores andbuilder-based dealers.   We currentlymaintain between ten and twelve million square feet of product in ourwarehouse.  Our inventory turns in 2003were approximately 1.5 times.  We expectto maintain turns during 2004 to 2.0. However, we cannot assure anyone that we will be successful in attainingthese expectations. Availability of product is a key success factor inmaintaining these turn ratios.

 

In May 2003, we commenced bulk sales ofproducts, made exclusively for IWT, to wholesale distributors throughout theUnited States.  The sales of theseproducts are made in full truckload or container load volumes, with someproduct being delivered directly to the customer from the factory(drop-shipped).  The gross margin onthese sales could be lower than our traditional business; however, we believethat the lower handling costs may offset the lost gross margin.  For the quarter ended June 30, 2004, truckbulk sales represented approximately 20% of our total sales.

 

Making it easy for our customers to sell product is also a key success factor for us. Wehave an extensive sampling and display program that augments the training andmarketing support we provide our customers. Our inventory of samples in thefield with our customers

 

15

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represents a significant investment that is capitalizedas property and equipment. The net value on June 30, 2004 and December 31,2003 were approximately $3,646,557 and $2,726,949, respectively on our balancesheet.

 

Another success factor forus is maintaining our position as a dependable supplier not only to meetcustomer demand but also to ensure leading edge design and technicalsuperiority of the product.  Weestablished International as our subsidiary, which is responsible for dealingwith the global array of manufacturers that supply us with product.  We continue to develop key relationships inEurope and South America and have begun to sell some of these new items throughIWT’s network of dealers and distributors.

 

**Liquidityand Capital Resources**

 

We had cash balances of$661,144 and $867,361 at the end of June 30, 2004 and December 31, 2003,respectively.  We have financed ourgrowth with new equity capital and increased borrowings from our commerciallender.  Thus, we have not generatedpositive cash flows from operations during the quarter ended June 30,2004.  Tesoro expects to continue to growand make use of outside capital for the foreseeable future.  We cannot assure anyone,however, that we will be able to obtain outside capital or if we do, that itwill be on terms beneficial us.

 

During the six months endedJune 30, 2004, Tesoro issued 45,500 shares of common stock in connection withwarrants exercised at $3.25 per share for a total of $147,875.  The purchasers were accredited investors,were provided with or had access to, information about the Company, includingfinancial information.  The transactionwas exempt pursuant to Section 4(2) of the Securities Act.

 

On May 26, 2004, Tesoro issued10,000 shares of common stock to a new outside member of our Board of Directorsat a price of $4.25 per share, which was the then fair market value, for atotal of $42,500.  On the same date, wealso issued 2,000 shares of common stock to a consultant a price of $4.25 pershare for a total of $8,500.  Both theshares issued to the outside director and the consultant werepursuant to Tesoro’s Stock Incentive Plan.

 

The balance due at June 30,2004 to our commercial lender for the use of the revolving line of credit wasapproximately $12.4 million.  The loanand security agreement contains certain covenants, which include financialcovenants that require us to maintain a certain leverage ratio, a required minimumfixed charge coverage ratio, and a certain inventory turnover ratio.  At June 30, 2004, we are in compliance withthe covenants set forth in our agreement with the financial institution.

 

**CriticalAccounting Policies**

 

Please refer to the Notes tothe Financial Statements regarding Tesoro’s Form 10-KSB for the fiscal yearended December 31, 2003 and filed with the Securities and Exchange Commissionon March 30, 2004.

 

**SegmentInformation**

 

We manage our operations in onesegment and all revenue is derived from customers in the United States.

 

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

 

**Quantitative and Qualitative Disclosures AboutMarket Risk**

 

 The Company is exposed to market risk fromchanges in interest rates and foreign currency exchange rates since it fundsits operations through short-term investments and has business transactions inEuros. A summary of the Company’s market risk exposures is presented below.

* *

*Interest Rate Risk*

 

Tesoro has fixed incomeinvestments consisting of cash equivalents and short-term investments, whichmay be affected by changes in market interest rates. The Company does not usederivative financial instruments in its investment portfolio. The Companyplaces its cash equivalents and short-term investments with high-qualityfinancial institutions, limits the amount of credit exposure to any oneinstitution and has established investment guidelines relative todiversification and maturities designed to maintain safety and liquidity.Investments are reported at amortized cost, which approximates fair value.

* *

*Foreign Currency Risk*

 

We currently purchase ourproducts from foreign manufacturers in U.S. dollars.  Our fund transfers are relatively large.  The Office of the Comptroller of the Currency(USOCC) monitors these activities. Should the EURO continue to strengthen against the US dollar, we couldsee an increase in our cost of product that could, in time,  pass on to our customers and thereforehave a detrimental impact on our profitability. Our competitors rely as heavily on imported product as we do.  Therefore, we do not see any change in the

 

16

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competitive landscape for ceramic tile as a result ofthe strength of the EURO.  Tesoro doesnot currently hedge against the risk of exchange rate fluctuations.

 

**ITEM 4 – CONTROLS AND PROCEDURES**

 

*Disclosure Controls and Procedures*

 

(a)                                  Withinthe 90 days prior to the date of this report, we carried out an evaluation,under the supervision and with the participation of management, including ourprincipal executive officer and principal financial officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Exchange Act Rule 13a-14.  Based upon this evaluation, our principalexecutive officer and principal financial officer concluded that our disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to us (including our consolidated subsidiaries) that isrequired to be included in our periodic SEC reports.

 

(b)                                 Therehave been no significant changes in our internal controls or in other factorsthat could significantly affect these controls subsequent to the date of theevaluation described in the preceding paragraph.

 

17

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**PART II**

 

**ITEM 1:****                                                    LEGALPROCEEDINGS**

 

We are not a party to any material pendinglegal proceedings and, to the best of our knowledge; no such action by oragainst us is contemplated, threatened or expected.

 

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

 

During the six months endedJune 20, 2004, Tesoro issued 45,500 shares of common stock in connection withwarrants exercised at $3.25 per share for a total of $147,875.  The purchasers were accredited investors,were provided with or had access to, information about the Company, includingfinancial information.  The transactionwas exempt pursuant to Section 4(2) of the Securities Act.

 

On February 17, 2004, Tesoroissued 15,000 shares of common stock valued at $5.99 per share, based on thetrading price of the shares on the date issued, for a total of  $89,850 to a consultant.

 

On May 26, 2004, Tesoro issued10,000 shares of common stock to a new outside member of our Board of Directorsat a price of $4.25 per share, which was the then fair market value, for atotal of $42,500.  On the same date, wealso issued 2,000 shares of common stock to a consultant at a price of $4.25per share for a total of $8,500.  Boththe shares issued to the outside director and the consultantwere pursuant to Tesoro’s Stock Incentive Plan.

 

The balance due at June 30,2004 to our commercial lender for the use of the revolving line of credit wasapproximately $12.4 million.  The loanand security agreement contains certain covenants, which include financialcovenants that require us to maintain a certain leverage ratio, a requiredminimum fixed charge coverage ratio, and a certain inventory turnoverratio.  At June 30, 2004, we are in compliancewith the covenants set forth in our agreement with the financial institution.

 

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

 

Not applicable

 

**ITEM 4:****                                                   ****SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

On June 19, 2004, Tesoro held its Annual Stockholders Meeting.  An information statement was provided to each of Tesoro’s stockholders that included the proposal to elect the slate of directors proposed by Tesoro’s Nominating and Governance Committee.  A majority of Tesoro stockholders had previously approved the nominations.

 

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

 

Not applicable

 

18

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

 

(a)                                  Exhibits

 

 

a.                                       Exhibits

 
| **EXHIBIT  NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                               |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                 |       | Articles of Incorporation  (filed as an Exhibit to the Company’s Form 10-SB, filed with the Securities  and Exchange Commission on August 7, 2000)                                                                                                                  |
| 3.1.1               |       | Articles of Amendment to  Articles of Incorporation dated September 23, 2002 (filed as an Exhibit  to the Company’s Report on Form 8-K, filed with the Securities and Exchange  Commission on October 1, 2002)                                                 |
| 3.2.1               |       | Bylaws (filed as an  Exhibit to the Company’s Form 10-SB, filed with the Securities and Exchange  Commission on August 7, 2000)                                                                                                                                     |
| 3.2.2               |       | Amended and Restated  Bylaws (filed as an Exhibit to the Company’s Report on Form 8-K, filed with  the Securities and Exchange Commission on February 4, 2003)                                                                                                      |
| 3.3.1               |       | Specimen Stock Certificate  (filed as an Exhibit to the Company’s Form 10-SB, filed with the Securities  and Exchange Commission on August 7, 2000)                                                                                                                 |
| 3.3.2               |       | Audit Committee Charter  (filed as an Exhibit to the Company’s Report on Form 8-K, filed with the  Securities and Exchange Commission on February 4, 2003)                                                                                                          |
| 3.3.3               |       | Compensation Committee  Charter (filed as an Exhibit to the Company’s Report on Form 8-K, filed with  the Securities and Exchange Commission on February 4, 2003)                                                                                                   |
| 3.3.4               |       | Nominating And Governing  Committee Charter (filed as an Exhibit to the Company’s Report on Form 8-K,  filed with the Securities and Exchange Commission on February 4, 2003)                                                                                       |
| 3.4.1               |       | Code of Ethics for Senior Financial  Officers (filed as an Exhibit to the Company’s Registration Statement, filed  with the Securities and Exchange Commission on April 11, 2003)                                                                                   |
| 4.1.1               |       | Form of Warrant Agreement  (filed as an Exhibit to the Company’s Registration Statement, filed with the  Securities and Exchange Commission on April 11, 2003)                                                                                                      |
| 4.1.2               |       | Form of Stock Certificate  (filed as an Exhibit to the Company’s Registration Statement, filed with the  Securities and Exchange Commission on April 11, 2003)                                                                                                      |
| 4.1.3               |       | Form of Lock-Up Agreement  (filed as an Exhibit to the Company’s Registration Statement, filed with the  Securities and Exchange Commission on April 11, 2003)                                                                                                      |
| 10.1                |       | Agreement With Peter Goss  (filed as an Exhibit to the Company’s Form 10-SB, filed with the Securities  and Exchange Commission on August 7, 2000)                                                                                                                  |
| 10.2                |       | Stockholders Agreement  (filed as an Exhibit to the Company’s Form 10-SB, filed with the Securities  and Exchange Commission on August 7, 2000)                                                                                                                     |
| 10.3                |       | 2001 Ponca Acquisition  Corporation Stock Incentive Plan. (filed as an Exhibit to the Company’s  Report on Form 8-K, filed with the Securities and Exchange Commission on  September 11, 2002)                                                                      |
| 10.4                |       | Employment Agreement  Between Ponca Acquisition Corporation And Henry Jr. Boucher, Jr. Dated As Of  December 29, 2002 (filed as an Exhibit to the Company’s Report on Form  8-K, filed with the Securities and Exchange Commission on September 11,  2002)     |
| 10.5                |       | Memorandum Of  Understanding Between Ponca Acquisition Corporation And The Stockholders Of  International Wholesale Tile, Inc. (filed as an Exhibit to the Company’s  Report on Form 8-K, filed with the Securities and Exchange Commission on  September 11, 2002) |
| 10.6                |       | Stock Purchase Agreement  Among The Stockholders Of International Wholesale Tile, Inc., and IWT Tesoro  Corporation, Effective October 1, 2002 (filed as an Exhibit on Form 8-K,  filed with the Securities and Exhibit Commission on October 15, 2002).                 |
| 10.7                |       | Termination Of  Stockholders Agreement (filed as an Exhibit to the Company’s Report on Form  8-K/A, filed with the Securities and Exchange Commission on February 4,  2003)                                                                                         |
| 10.8                |       | Repurchase Agreement  (filed as an Exhibit to the Company’s Report on Form 8-K/A, filed with the  Securities and Exchange Commission on February 4, 2003)                                                                                                           |
| 10.9                |       | Form of Indemnity  Agreement (filed as an Exhibit to the Company’s Registration Statement, filed  with the Securities and Exchange Commission on April 11, 2003)                                                                                                    |
| 10.00               |       | Employment Agreement  between International Wholesale Tile, Inc. and Forrest P. Jordan (exhibits  omitted) (filed as an Exhibit to the Company’s Registration Statement, filed  with the Securities and Exchange Commission on May 21, 2003)                             |
| 10.11               |       | Employment Agreement  between International Wholesale Tile, Inc. and Paul F. Boucher (this document  is omitted as it is substantially similar to Forrest P. Jordan’s Employment  Agreement with the exception of the employee’s name and address)                  |
| 10.12               |       | Employment Agreement  between International Wholesale Tile, Inc. and Grey Perna (this document is  omitted as it is substantially similar to Forrest P. Jordan’s Employment  Agreement with the exception of the employee’s name                                    |

 

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

 

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*                                         Filed herewith.

 

(b)                                 Reports on Form 8-K

 

Form 8-K, filed on April 1, 2004, regarding the resignation of a director and the appointment of a new director.

 

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SIGNATURES

 

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

 

 
|            |   |   | IWT TESORO CORPORATION                     |
|-----------------|--------|--------|--------------------------------------------|
|            |   |   |                                       |
|            |   |   |                                       |
| August 13, 2004 |   |   | /s/ Henry J. Boucher, Jr.                  |   |
|            |   |   | Henry J. Boucher, Jr., President           |
|            |   |   |                                       |   |
| August 13, 2004 |   |   | /s/Forrest P. Jordan                       |   |
|            |   |   | Forrest P. Jordan, Chief Financial Officer |

 

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