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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K/A (Amendment No. 1) (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004 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: 001-32428   TARPON INDUSTRIES, INC.  MICHIGAN
    
    30-0030900(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)2420 Wills Street, Marysville, Michigan
    
    48040(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (810) 364-7421 Securities registered pursuant to section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredCommon Shares, no par value
    
    American Stock Exchange
 Securities registered pursuant to section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o     No þ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not 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-K
or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes o     No þ The aggregate market value of the common shares held by non-affiliates computed by reference
to the price at which the common shares were last sold as of June 30, 2004 (the last business day
of the registrants most recently completed second fiscal quarter), assuming that price was the
same as the registrants February 14, 2005 initial public offering price of $5.00 a share, was
approximately $3,302,310. The number of the registrants common shares outstanding as of March 31, 2005 was
4,640,130. Documents Incorporated by Reference Portions of the Proxy Statement for the 2005 Annual Meeting of Shareholders, scheduled to be
held June 9, 2005, are incorporated by reference in Part III, if the Proxy Statement is filed no
later than May 2, 2005.




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TARPON INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004 TABLE OF CONTENTS PAGE PART I
    
    
    
    
    2ITEM 1.
    
    BUSINESS
    
    
    2ITEM 2.
    
    PROPERTIES
    
    
    26ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    26ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    
    
    26SUPPLEMENTAL ITEM
    
    EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    27PART II
    
    
    
    
    29ITEM 5.
    
    MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    29ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    33ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    38ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    61ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    63ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    101ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    131ITEM 9B.
    
    OTHER INFORMATION
    
    
    132PART III
    
    
    
    
    132ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    133ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    134ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    134ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    134ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    134PART IV
    
    
    
    
    135ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    135Certifications of Chief Executive Officer Pursuant to Section 302Certifications of Chief Financial Officer Pursuant to Section 302Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906
 1




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PART I 
 ITEM 1. BUSINESS General and Recent Developments We manufacture and sell structural and mechanical steel tubing and steel storage rack systems.
We also distribute and broker the sale of structural and mechanical steel tubing manufactured by
others. We were incorporated in Michigan on January 16, 2002 and have made three acquisitions.
Our subsidiaries are Eugene Welding Co., or EWCO, acquired in April 2004, and Steelbank, Inc., or
Steelbank, acquired in May 2004. Steelbank, Inc. acquired substantially all of the assets and
business, other than the real estate, of the Haines Road facility of Bolton Steel Tube Co., Ltd.,
or Haines Road, in February 2005. Through EWCO and Haines Road, we manufacture and sell
structural and mechanical steel tubing and steel storage rack systems. Through Steelbank, we act
as a distributor and sales representative for structural and mechanical steel tubing. We have two
manufacturing facilities in Michigan, within 80 miles north of Detroit, and a third manufacturing
facility and a warehouse facility in Mississauga, Ontario, Canada, a suburb of Toronto. Our
customers are generally located within 800 miles of our manufacturing plants. We intend to seek
other acquisitions in the steel tubing and related industries, although we currently have no
agreement for any other such acquisition. Our principal executive offices are located at 2420 Wills Street, Marysville, Michigan 48040.
Our telephone number is (810)364-7421. Our e-mail address is tarponir@tarponind.com and our web
site address is http://www.tarponind.com. Information accessed on or through our web site does not
constitute part of this report. Industry Overview The steel tubing and the steel storage rack systems industries are fragmented, with more than
100 manufacturers geographically disbursed in the United States and Canada serving niche and
regional markets. Because of the size and weight of structural and mechanical steel tubing, costs
of transportation are significant, and it is generally not cost effective to ship these products
more than 800 miles from the manufacturing plant. This and customers short lead-time requirements
limit the geographic market for steel tubing manufacturers. Structural and Mechanical Steel Tubing Structural steel tubing, also known as Hollow Structural Sections or HSS, is processed
continuously from hot rolled steel coil, roll formed and welded in line using high frequency
welding and cut to length by an in-line traveling saw or shear. HSS is manufactured in round,
square and rectangular sections in sizes ranging from 2 inches square and round through 4 inches
square and 5 inches round at EWCO to ASTM A500 Grade B and C specifications. HSS is used as
structural members for buildings and structural frames and parts for equipment in a variety of
applications and industries. Structural steel tubing provides a high strength-to-weight ratio,
uniform strength, torsional rigidity, an aesthetic appearance, cost-effectiveness and
recyclability. Mechanical steel tubing is typically manufactured to smaller sizes, 2 inches square and below,
and lighter gauges, 0.120 of an inch wall and lighter. This tubing is made to tighter
manufacturing tolerances than structural tubing and usually from steels with lower strength and
greater formability and 2




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ductility. Mechanical tubing produced at EWCO and Haines Road are produced from hot rolled
pickled and oiled, cold rolled, aluminized, pre-galvanized (G-60 or G-90), and galvalume steel and
galvanneal strip. These products are manufactured typically to ASTM A513 type 1 or 2
specifications. Mechanical steel tubing is manufactured from low carbon to high strength, low
alloy material, for greater strength and formability. Using this type of steel allows for lighter
weight products for use in automotive parts and furniture and in a variety of applications for
machine and equipment parts, typically where formability, machinability and fluid conduction are
required. Applications for structural and mechanical steel tubing include the following:  
    Leisure Products:exercise equipment, bicycles, boating trailers, boat hoists,
recreational vehicles and pop-up campers.
    Agricultural/Commercial:greenhouses, sprinkler systems, farm implement components,
tillage equipment, fork lifts and industrial equipment.
    Commercial Construction:building conduit, handrails, scaffolding, bridges and
miscellaneous uses.
    Automotive:various components, including aftermarket automotive exhaust systems, trunk
hinges, trailer hitches, storage racks and hydro formed components.
    Furniture:tables, chairs, stools, closet and curtain rods, beds, futons, storage
units, and store display racks.
    Appliance:refrigerators, stoves and barbecues.
    Garden and Home Tools:Lawnmowers, snow blowers, shovels, rakes, and water sprinklers.
    Fencing:residential, including dog runs, commercial, industrial and ornamental.
    Energy and Exploration:oil rigging related equipment.
    Steel storage rack systems. Steel Storage Rack Systems Steel storage rack systems are generally structural steel tubing or structural beams that are
assembled with fabricated metal components and welded together to form frames and beams. Leading
manufacturers of steel storage rack systems are members of the Rack Manufacturers Institute, which
promulgates standards for, and certifies, standard rack components. These standard components can
be assembled to form  
    selective racks, which are typically used in public and commercial warehouse
applications where the ability to select palletized materials is desired, which represent a
substantial majority of our steel storage rack system sales,
    drive-in/through racks, which provide high-density storage of palletized long shelf life
products, such as salt,
    push back racks, another form of high-density storage, which provides some degree of
selectivity,
    cantilevered racks, which are typically used in the bulk storage of large unit items,
such as lumber, plywood and drywall,
    archival storage systems, which are designed to provide high density records storage,
for the legal, medical and banking industries and. 3




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
    order-picking systems, which are designed to incorporate into the rack a conveying
system and multi-level mezzanine from which product can be taken off of pallets and
repackaged for shipment to individual store locations. These systems are used in the home center, retail distribution, public warehouse and
commercial and industrial distribution markets. Engineering and system design services are
involved in choosing the appropriate components for the system. Our Operations EWCO Currently, EWCO manufactures and sells structural steel tubing and SpaceRak® steel
storage rack systems at its leased facilities in Marysville and Marlette, Michigan,. EWCO
commenced operations in 1954 as a manufacturer of steel products. Currently, EWCO manufactures
structural and mechanical steel tubing in sizes ranging from 1.5 inches round and square to 5.0
inches round and 4.0 inches square, and complementary sizes in rectangular and specialty oval
shapes, typically to the structural specification ASTM A500 Grade B and C and the mechanical
specification ASTM A513 Grade B. In addition, EWCO manufactures steel storage rack systems, now
including selective racks, drive-in/through racks, push back racks, cantilevered racks, archival
storage systems and order picking systems used in the home center, retail distribution, public
warehouse and commercial and industrial distribution markets. For the twelve month period ending
December 31, 2004, tubular products accounted for approximately 47% of EWCOs revenues, and
SpaceRak systems accounted for approximately 53% of EWCOs revenues. We believe EWCO has
significant additional manufacturing capacity because its equipment can be run at higher speeds,
and because additional employee shifts could be added. In April 2004, Tarpon Industries acquired 100% of the outstanding common shares of EWCO from
its sole shareholder, who was its Chief Executive Officer from April to August 2004. Tarpon
acquired EWCO for $415,450 in cash paid to its sole shareholder for all of the then outstanding
EWCO shares. Prior to the acquisition, EWCO redeemed 90% of the then outstanding shares from him
for $3,603,144, of which $670,000 was represented by a promissory note that was paid out of the
proceeds of our initial public offering in February 2005. The remaining $2,933,144 of the
redemption price was retained by EWCO to repay a note to EWCO from the former sole shareholder
relating to his acquisition of EWCO in 2001. Steelbank Since 1990, Steelbank has distributed structural and mechanical steel tubing and has acted as
a sales representative. It currently leases a warehouse facility in Mississauga, Ontario, a suburb
of Toronto. It does not manufacture its own products. Most of Steelbanks administrative
functions have been relocated to the Haines Road facility. The warehouse function will remain at
Steelbanks leased facility until either the facility has been sublet or the inventory has been
liquidated. The Steelbank personnel function primarily as a sales force for EWCO and Haines Road
products. On May 14, 2004, we acquired 100% of the outstanding common stock of Steelbank for a total
cost of approximately $1,656,563 U.S. Dollars including legal and success fees , by paying 4




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approximately $54,263 (Cdn.$75,000) in cash, issuing a promissory note in the principal amount
of approximately $574,300 (Cdn.$800,000), by issuing 60,636 of our common shares in February 2005,
valued at $269,230 (Cdn $375,000) by issuing additional promissory notes in the aggregate principal
amount of approximately $290,750 (Cdn.$405,000) payable over three years to the three former
shareholders of Steelbank, unless their employment with Steelbank is terminated for specified
reasons. Additionally, we paid our consultant a $200,000 success fee in connection with the
acquisition and incurred approximately $268,018 in expenses related to the acquisition, which we
have added to the cost of the acquisition. The notes are secured by all of the shares of Steelbank
and the assets of Steelbank. Canadian dollars are translated into U.S. dollars as of the
acquisition date of May 14, 2004. Haines Road Haines Road has manufactured and sold structural and mechanical steel tubing at an owned
facility in Mississauga, Ontario, Canada, a suburb of Toronto, since 1988. Its customers use its
products for residential, commercial and industrial fencing, scaffolding, automotive after-market
exhaust systems, racking and greenhouses. We believe Haines Road has significant additional
manufacturing capacity, because its equipment can be run at higher speeds and because additional
employee shifts could be added. In February 2005, Steelbank consummated the acquisition of substantially all of the assets,
other than the real estate, of Haines Road from Bolton Steel Tube Co., Ltd. pursuant to an Asset
Purchase Agreement originally entered into in July 2004, as amended. The purchase price was an
aggregate of approximately $9,677,000 (Cdn.$11,860,000), consisting of (1) approximately $290,000
(Cdn.$356,000) in deposits paid before closing, (2) approximately $7,402,000 (Cdn.$9,072,000), paid
in cash at the closing of the acquisition, (3) approximately $979,000 (Cdn.$1,200,000) secured,
subordinated promissory note, payable 15 months after closing or by offset against amounts owed for
purchases by Bolton from Haines Road after closing, (4) approximately $1,005,000 (Cdn.$1,232,00)
for purchased inventory, payable within 45 days after the closing of the acquisition; expenses
related to the transaction, over and above the asset purchase agreement, include the following (5)
a $200,000 success fee in connection with the transaction, payable to Bainbridge Advisors over 24
months, and (6) approximately $131,400 in expenses related to the transaction. We funded a portion
of the purchase price with proceeds of loans described in Item 7, under Liquidity and Capital
Resources  Financing Arrangements. Pursuant to a Guarantee between Tarpon and Bolton, Tarpon guaranteed Steelbanks obligations
under the secured subordinated promissory note executed by Steelbank in favor of Bolton. As part
of the transaction, we have agreed not to compete with Bolton with respect to hot-dipped galvanized
products for a period of six months after closing. We have also agreed to acquire the Haines Road real estate for an estimated aggregate of
approximately $4,651,000 (Cdn.$5,700,000), consisting of (1) approximately $3,427,000 (Cdn.
$4,000,000) for the cash portion of the purchase price of the Haines Road real estate, with
approximately $163,000 (Cdn.$200,000) paid as a deposit and the balance payable within 90 days
after the closing of the acquisition, and (2) approximately $1,224,000 (Cdn.$1,500,000) secured
promissory note, payable 15 months after real estate closing date or, if the fair value of the
purchased real estate less the loans secured by the purchased real estate is not at least
approximately $408,000 (Cdn.$500,000) or if the first mortgage on the purchased real estate exceeds
approximately $3,019,000 (Cdn.$3,700,000), 5




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payable on the real estate closing date. We expect to seek approximately $3,019,000
(Cdn.$3,700,000) in mortgage financing, although we currently have no commitment for the mortgage
financing. We have also agreed to lease the Haines Road real estate during the period between the
acquisition closing date and the real estate closing date at a monthly rent of approximately
$62,300 (Cdn.$75,000). Our Business Strategy Our business strategy is to become a larger and more significant manufacturer and distributor
of structural and mechanical steel tubing, steel storage rack systems and related products in our
current geographic market, and then to expand outside our markets. Key elements of our strategy
are to Acquire facilities, customers and management through strategic acquisitions of other steel
tubing, steel storage rack system and related product manufacturers or distributors.The steel
tubing and the steel storage rack system industries are fragmented, with more than 100
manufacturers geographically dispersed in the United States and Canada serving niche and regional
markets, providing us with potential acquisition opportunities. We could use our common shares,
other securities or additional indebtedness for possible strategic acquisitions of steel tubing,
steel storage rack system and related product manufacturers, distributors or both, to expand our
manufacturing capabilities within our current geographic markets to realize purchasing and
administrative economies of scale and to expand our geographic markets by acquiring manufacturing
facilities closer to additional customers. Although we regularly review potential acquisition
opportunities, we have no agreement, other than with respect to Haines Road real estate, and no
understanding for any other acquisition. Invest in production equipment.We intend to use a portion of the proceeds of our initial
public offering to invest in newer, more efficient equipment to replace older, less efficient
equipment, which we believe will improve our manufacturing costs and operations. In addition, we
intend to invest in equipment to enable us to perform additional finishing operations, which may
include punching, mitering, drilling, cutting, de-burring, assembly and additional automated
welding for the various tube sizes we currently produce. We expect these value added processes
will generate additional revenue and gross margin from existing customers and allow us to sell
products to additional customers that require these services. In addition, based on financing
availability, we intend to upgrade our liquid painting system at EWCO to a powder coat painting
system, since we believe that some customers will only purchase product painted with a powder coat
painting system. We believe that adding this capability could increase our sales of steel storage
rack systems in the home center and other retail markets. Expand marketing and sales activities for EWCO and Haines Road.We intend to use Steelbanks
marketing and distribution personnel to increase its distribution of EWCO and Haines Road products.
Steelbank, however, is likely to lose existing suppliers and customers as a result of this plan;
in particular, manufacturers that compete with our subsidiaries are expected to stop using
Steelbank to distribute or sell their products. We also intend to use our steel storage rack
systems engineering and manufacturing expertise to attempt to increase sales to existing customers
and to new customers and to identify additional potential markets, including automatic storage and
retrieval systems, refrigerated steel storage rack systems, archival steel storage rack systems and
additional engineered projects in the home center and other retail industries. Integrate the operations of EWCO, Haines Road and Steelbank, as appropriate, and other
entities we may acquire.We intend to use our combined buying power to purchase more efficiently
and 6




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to use Steelbanks purchasing expertise. We also intend to centralize some management
functions, including accounting, finance, human resources and administration and adopt consistent
standards, controls, procedures and policies. We intend to relocate the Steelbank offices and
warehouse to the Haines Road facility and to have its personnel function primarily as a sales force
for EWCO and Haines Road products, and either terminate or sublease the existing Steelbank
facility. Because they produce different products for different customers, with EWCO primarily
producing structural steel tubing and Haines Road primarily producing mechanical steel tubing, we
currently intend to continue to use the EWCO and Haines Road facilities to manufacture the types of
products they currently produce. Our Products Tubular Products EWCOs and Haines Roads steel tubing products are building blocks for manufacturers of other
products. Steel tubing products are used in original equipment manufacturer automotive, boating,
industrial equipment, construction, agricultural, steel service center, leisure and recreational
vehicle markets. EWCO manufactures primarily structural steel tubing from plain steel coil, while
Haines Road manufactures primarily mechanical steel tubing from coated steels, the primary
difference being that mechanical steel tube uses thinner, generally coated steel, such as
pre-galvanized, aluminized and G90 steel, and generally has closer tolerances, smaller diameters
and more corrosion resistance, making it more useful for some consumer products. Steel Storage Rack Systems Our steel storage rack systems are used for heavy-duty industrial, warehouse and retail
storage systems. EWCO manufactures structural and roll-formed steel selective racks,
drive-in/through racks, push back racks, cantilevered racks, archival storage systems and order
picking systems. The general difference between these products is the manner in which the stored
items are accessed. The difference between structural and roll-formed racks is primarily the
material from which the product is manufactured. Structural racks use structural beams as their
base material, for heavier-duty applications, while roll-formed racks use structural steel tubing. Our roll-formed products are R-mark certified (#5170), which is an independent certification
process registered with the Rack Manufacturers Institute of North America. This certification
assures that the designs and capacity tables meet all current Rack Manufacturers Institute,
American Iron and Steel Institute and American Institute of Steel Construction specifications. It
also makes our products standardized. We design our steel storage rack systems to comply with
customer specifications. SpaceRak® products include the following:  
    Selective Rack  Roll Formed:We manufacture this product in five different post cross
sections, from 3 inch x 1-5/8 inch to 4 inch x 3 inch, with gauges ranging from 16 gauge to
10 gauge in most shapes. We also manufacture eight different size step beams, ranging from
2-1/4 inch x 2-1/5 inch to 6 inch x 2-1/2 inch rolled in 16 gauge through 11 gauge. We
also offer a large quantity of box beams. We also manufacture accessories for pallet rack
installation, including special accessories for the retail market. Historically, this rack
has generated our largest steel storage rack systems sales. 7




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
    Selective Rack  Structural Steel:We can furnish this product with uprights from 3
inch to 4 inch structural channels and beams made from any structural channel, I-beam or
wide flange section. It makes a special wide flange upright frame that also uses bolt on
beams.
    Drive-in/Drive-through Rack:Using the frames and beams from the selective rack, we
design drive in racks using special arms and rails to hold the pallets.
    Pushback Racks  Roll Formed and Structural Steel:We furnish rolled formed and
structural pushback racks. They use a pushback track system purchased from a third party
for most of its systems.
    Cantilever Rack  Roll Formed:We have a roll formed cantilever rack that is medium
duty and is used for smaller systems and furniture storage applications. We also offer
accessories to compliment this product.
    Cantilever Rack  Structural Steel:We have a structural steel cantilever rack that is
heavy duty and is used in the lumber industry and retail lumber applications. We offer
columns from 6 inches to 16 inches deep that have matching arms welded from 3 inch to 5
inch I-beams and 6 inch and 8 inch wide flanges. We also offer accessories to compliment
this product.
    Archival storage system:We use our roll formed storage racks with special decking
options and mezzanine decking options to create a multi-level steel storage rack system to
store archival records.
    Order Picking Systems:We use our roll formed storage racks with pallet flow and carton
flow products. These systems also require a large amount of outside purchased items,
including floor decking, safety grating, stairs, and fire baffles. Our Customers We market and sell our steel tubing products to customers in original equipment manufacturer
automotive, boating, industrial equipment, construction, agricultural, steel service center,
leisure and recreational vehicle markets. We market and sell our steel storage rack systems
products to customers in the home center industry, retail distribution, public warehouse and
commercial and industrial distribution markets and distributors to customers in those markets.
During 2004, our ten largest customers represented approximately 61% of our combined net revenues,
including Menard, Inc., which represented approximately 22% of our combined net revenues. During
2003, our ten largest customers represented approximately 56% of our combined net revenues,
including Menard, Inc., which represented approximately 10% of our combined net revenues. The loss
of any of these customers or any significant reduction in their business would have an adverse
effect on our business, financial condition and results of operations. 8




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Our Marketing, Sales and Distribution We currently sell our structural and mechanical steel tubing and steel storage rack systems
products primarily through our direct sales force. EWCOs steel tubing products are sold through
two direct salespersons, including Mark Madigan of Steelbank, EWCOs customer service department
and independent sales representatives. EWCOs steel storage rack system products are sold through
two direct sales persons, independent distributors and independent sales representatives. Haines
Road sells its products through two direct sales persons. Steelbank, a sales representative and
distributor, sells products through four direct sales persons. EWCOs tubing products sold for approximately $909 a ton as of December 2004. EWCOs steel
storage rack systems products sold for approximately $1,322 a ton as of December 2004. These
prices exclude shipping costs. We intend to increase Steelbanks distribution of EWCO and Haines Road steel tubing products,
and expect a reduction in our distribution of products of other suppliers with a complete
elimination of competing products. Before the closing of our acquisition of Haines Road and
Steelbanks access to its products, Steelbanks loss of existing suppliers might make it unable to
fill its customers needs, adversely affecting its relationships with its customers. We also intend to use our steel storage rack systems engineering and manufacturing expertise
to attempt to increase sales to existing customers and to new customers and to identify additional
potential markets, including automatic storage and retrieval systems, refrigerated steel storage
rack systems, archival steel storage rack systems and additional engineered projects in the home
center and other retail industries. Inventory and Backlog We generally produce our products to fill specific orders or for forecasted requirements to
provide us with some additional flexibility in responding to customer delivery demands, while
generally producing one tube size on each mill over a six to eight week mill rolling schedule to
minimize changeover costs. Inventories of our steel storage rack system products are generally a
combination of components manufactured by EWCO and components purchased from third parties.
Historically, stock inventory levels of steel storage rack systems components of large volume
products fluctuate between two and three weeks. Neither EWCO nor Haines Road has a backlog of firm orders. We do not consider any of our
backlog orders to be firm, as they generally may be cancelled without penalty. Manufacturing The raw material for manufacturing structural steel tubing is steel coil. We purchase various
gauges of steel coil that is typically 50 inches wide and weighs 40,000 to 50,000 pounds. The
steel coil is slit to the desired width, typically between five (5) and sixteen (16) inches. If
appropriate, we then punch holes in the steel. The slit, and sometimes punched, steel is then fed
into a tube mill. The mill forms the steel into a round tube, welds the seam and then reforms the
tube into the desired shape: square, rectangular, round or special shape. The tubes are then cut
to a desired length and are prepared for shipment to the customer or moved for further processing,
such as saw cutting, punching, drilling, 9




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mitering, de-burring, or painting. Haines Roads mechanical steel tubing products are
primarily manufactured from coated steels, such as pre-galvanized, aluminized and G90 steel. EWCO currently has four (4) tube mills primarily producing structural steel tubing products.
We intend to use a portion of the proceeds of our initial public offering to upgrade our tube mill
systems, acquire additional production tooling, material handling systems, and automation systems
for EWCOs structural steel tubing operations. We also intend to use a portion of the proceeds of
our initial public offering to invest in equipment that will enable us to perform more secondary
operations on EWCOs steel tubing and to acquire a new frame welding system for EWCOs steel
storage rack systems operations to automate and reduce the costs of welding. The acquisition of Haines Road in February 2005 added three principal tube mills, primarily
producing mechanical steel tubing. It is produced using a variety of steel types and in a wide
variety of sizes. Its close tolerances allow the tubing to be used in mechanical parts with little
or no metal removal or machining, making it cost-effective for many mechanical applications. One
of Haines Roads primary tube mills is a high-speed tube mill with quick change and dimple free
cut capability. This mill has the ability to produce close tolerance tubing at high run speeds,
using more efficient solid-state welding technology. This mill also has remetalizing, UVC coating
and in-line quality testing capabilities. Haines Roads other two primary mills also have in-line
UVC coating as well as in-line de-dimpling capability. Haines Roads mills have the capability to provide a clear UVC coating on products for
customers who require or request additional corrosion resistance for more severe applications. The
coating is applied in-line and is cured rapidly using ultra-violet technology. It is typically
applied over zinc-coated substrates, such as G90, to enhance the corrosion resistant properties and
prevent the onset of white-rust. The finish is a smooth clear paint coating, which is bonded to
the substrate. Haines Road is considering adding the capability to apply the coating in various
colors. The in-line remetalizing system for tube products manufactured from coated
(pre-galvanized) steel repairs the weld area of the tube. The manufacturing process for roll formed steel storage rack systems is similar to the process
for structural and mechanical steel tubing. Slit steel coil is fed into a mill and converted into
C and U shaped sections of various lengths. These parts are then assembled together with a variety
of fabricated metal components, either produced by us or acquired from third parties. The parts
are assembled in fixtures and welded, currently primarily by hand, into their desired
configuration. The completely welded frames and beams are then painted using an electrostatic
paint system. The paint system applies a water-based acrylic enamel coating. For structural steel storage rack systems, we initially cut structural beams to the required
dimensions. These structural components are then used for the columns or support arms of the steel
storage rack system. We then use equipment such as shears, press brakes, ironworkers and presses
to produce various fabricated components and then weld the necessary brackets and components to the
structural columns or arms. The completely welded parts are then painted using a hand-applied
electrostatic baking enamel, matched to the customers color requirements, on a continuous flow
paint line. 10




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EWCO currently has one step tube mill and five (5) roll form tube mills primarily producing
steel storage rack system products. Manufacturing time for an order is typically one week,
although complex or large orders may take up to several weeks. Competition Our structural and mechanical steel tubing and steel storage rack systems products are
generally manufactured according to standard industry specifications. Substantially similar
products are available from a number of manufacturers. As a result, we are subject to intense
competition, principally based on price and also based on how closely the product conforms to
specifications, product availability, delivery and service. Some of our competitors are larger
than we are, have larger product lines, have more diversified businesses, have well-established
reputations and customer relationships and have greater financial, engineering, manufacturing,
marketing, distribution and management resources than we do and are more able to engage in price
competition. Because of the size and weight of structural and mechanical steel tubing and the resulting
costs of transportation and price competition, it is generally not cost effective to ship these
products more than 800 miles from the manufacturing plant. This and customers short lead-time
requirements create geographic limits for our steel tubing products. Our competitors may be more successful than we are in manufacturing and marketing their
products, may be able to take advantage of the significant time and effort we invest in engineering
and system design services for steel storage rack systems and may be better able to endure business
downturns or periods of declining prices of steel tubing and steel storage rack systems products.
We believe that some competitors reduce their prices and gross profits from time to time to obtain
market share. We also believe that our manufacturing costs are higher than some of our
competitors. As a result, our competitors may be more willing or better able to engage in price
competition. Our more significant competitors with respect to structural and mechanical steel tubing are
United States and Canadian manufacturers located within 800 miles of our selling area, including
Copperweld Inc., Atlas Tube, Inc., Bull Moose Tube Company, Levitt Tube Company, Lockjoint Tube,
Inc., Sterling Pipe and Tube, Inc., Hanna Steel Corporation, Independence Tube Corporation, Allied
Tube and Conduit, a division of Tyco International Limited Company, Maverick Tube Corporation,
Wheatland Tube Company, Welded Tube of Canada Limited, and James Steel & Tube Company. Our more significant competitors with respect to steel storage rack systems are United States
and Canadian manufacturers, including United Store Fixtures Company, Morgan Marshall Industries,
Inc., Ridg-u-Rak, Inc., SpeedRack Products Group, Ltd. and SteelKing Industries, Inc. We believe
that the principal competitive factors affecting our steel storage rack system products depend on
the type of customer. For sales to distributors, we believe the principal competitive factors are
price and delivery, with little engineering and system design on our part. For retail sales, we
believe the principal competitive factors are price, quality, product availability, delivery and
customer support systems that can work with the logistical and purchasing functions of the
customer. Engineered large products are generally sold through systems consultants and
manufacturing representatives. We believe that the principal competitive factors for these sales
are price, quality, product availability, delivery and engineering design knowledge, including
technical creativity and project management capabilities. 11




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Steel We use steel coil in the manufacture of our products. We try to coordinate our steel
purchases with our sales and production forecast, generally resulting in a one to two month supply
of steel coil on hand. We currently seek to minimize the potential adverse impact of commodity
price risks of our steel inventory by minimizing the amount of steel inventory we carry. However,
opportunities to purchase larger quantities at below market value are considered and reviewed
against current market conditions. A portion of our working capital may be used to purchase and
store steel when prices are deemed to be favorable. EWCO also uses structural materials in the manufacture of its steel storage rack systems, such
as angle iron, I-beams, and flange beams. EWCO generally purchases items that it uses in larger
volumes directly from three steel mills to obtain the best price and quality, subject to product
availability and freight costs. It typically maintains a one-month supply of large volume
materials. It purchases smaller volume materials through one of two local service centers, which
may charge more, but do not require us to carry as much inventory. In 2004, EWCO purchased approximately 73% of its steel coil from four suppliers. While we
believe steel coil is generally available from a number of suppliers, the loss of any of our
present suppliers, interruption of production at one or more of these suppliers or any other
disruption in the supply of steel coil from these suppliers could impair our ability to manufacture
our products or require us to pay higher prices to obtain steel coil from other sources. We do not
intend to maintain significant inventories of steel coil. Therefore, we might incur delays in
meeting delivery deadlines if a particular supplier is unable or unwilling to meet our
requirements. The cost of steel represented approximately 64% of EWCOs revenues in 2004. As a result, the
steel industry, which is highly volatile and cyclical in nature, materially affects our business.
Steel is a global commodity, with its price based on worldwide supply and demand. Numerous
factors, most of which are beyond our control, drive the cycles of the steel industry and influence
steel prices. The following table sets forth the average cost per ton of steel coil purchased by
EWCO in the years ended December 31, 2004, 2003 and 2002: Average Cost Per Ton of SteelYear EndedDecember 31,2004
    
    
    2003
    
    
    2002EWCO
    
    $
    649
    
    
    $
    294
    
    
    $
    325
 The United States imposed anti-dumping tariffs in March 2002 on some countries over a
three-year period at decreasing rates, reducing foreign imports of steel coil and increasing the
cost of flat rolled steel in 2003. These protections were rescinded in December 2003, but we
believe the devaluation of the U.S. dollar and increased Chinese consumption of steel have limited
steel imports. We believe that these conditions, combined with increased demand from a recovering
U.S. economy and increased consolidation in the domestic steel producing industry resulted in
continued increased costs of steel coil in the beginning of the second quarter of 2004, although
steel prices stabilized in the latter part of 2004. 12




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Trademark and Domain Names We have registered the trademark SpaceRak® in the United States. The registration
of this trademark is renewable indefinitely. We believe that SpaceRak® is recognizable
in the industry and might be important to our steel storage rack systems business. Tarpon maintains web sites at www.tarponindustries.net (under construction) and
www.tarponind.com (under construction). EWCO also maintains web sites at www.spacerak.net and
www.ewco.net. Environmental, Health and Safety Regulation Our business is subject to numerous U.S. and Canadian local, state, provincial and federal
laws and regulations concerning environmental, health and safety matters, including those relating
to air emissions, wastewater discharges, storm water drainage, and the generation, handling,
storage, transportation, treatment and disposal of hazardous materials. Violations of such laws
and regulations could lead to substantial fines and penalties. Also, there are risks of
substantial costs and liabilities relating to the investigation and remediation of past or present
contamination, at current or former properties used or owned by us and at third-party disposal
sites, regardless of fault or the legality of the original activities that led to such
contamination. EWCO is unaware of any material noncompliance with its air permits or applicable air, water
and waste management rules and regulations at its Marysville or Marlette, Michigan facilities,
except that, in July 2004, the Michigan Department of Environmental Quality, or MDEQ, notified
EWCO that it had determined that the Marysville facility was a major source for certain air
emissions and that EWCO had failed to apply for a Renewable Operating Permit for air emissions not
covered by its Permit to Install then in effect. EWCO applied for a revised Permit to Install to
obviate the need for a Renewable Operating Permit in August 2004, and received the revised Permit
to Install in December 2004. The MDEQ and EWCO have negotiated a resolution of the violations
alleged by MDEQ, and EWCO has agreed in principle to pay a settlement amount of approximately
$31,000 to resolve the violations alleged by the MDEQ in July 2004. The MDEQ posted for public
comment a proposed consent order summarizing the agreement, and the MDEQ accepted public comment on
the proposed consent order until April 20, 2005. A Phase I and II environmental report prepared in June 2003 for the Haines Road facility in
Mississauga, Ontario, acquired in 2005, did not identify any material noncompliance with applicable
environmental legislation and guidelines, except that it recommended that the facility determine
whether it is required to obtain from the appropriate regulatory agencies a certificate of approval
for its baghouse operation. The report also identified an area of petroleum hydrocarbon soil
contamination near a disconnected electrical transformer on the Haines Road property. We will be
responsible for any remediation of the Haines Road site, and our agreement to purchase Haines Road
allocates these costs to us. A Phase I update for the Haines Road facility was performed in December 2004. The report
reconfirmed the prior reports conclusions regarding the need to determine whether a certificate of
approval is necessary for the baghouse operation. We expect to determine the necessity of these
approvals and, if the approvals are required, to file the necessary applications after the closing
of our 13




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acquisition of Haines Road. The December 2004 Phase I update also reconfirmed the prior
reports observations regarding an area of petroleum hydrocarbon soil contamination near a
disconnected electrical transformer on the Haines Road property and also identified an additional,
similar staining around an above-ground fuel storage tank. We expect to perform additional tests
on these areas after the closing of our acquisition of Haines Road. Seasonality There are seasonal fluctuations in demand for our products. Historically, the demand for our
steel tubing products typically peaks during the first and second quarters, while demand for our
steel storage rack systems typically peaks during the third and fourth quarters. The timing of
these fluctuations has been dependent on the overall economy and may change as our customer and
product mix change. Insurance Actual or claimed defects in our products could give rise to products liability claims against
us. We might be sued because of injury or death, property damage, loss of production or suspension
of operations resulting from actual or claimed defects in our products. We have products liability
insurance with a liability limit of $3,000,000 at EWCO. Employees As of March 13, 2005, EWCO and Tarpon, and as of February 17, 2005, Steelbank, prior to the
acquisition of Haines Road, employed approximately 160 full-time individuals collectively, as
described below: Sales and
    
    
    Tubular
    
    
    SpaceRakEmployer
    
    Administrative
    
    
    Manufacturing
    
    
    Manufacturing
    
    
    TotalTarpon
    
    
    3
    
    
    
    0
    
    
    
    0
    
    
    
    3EWCO  Marysville
    
    
    32
    
    
    
    41
    
    
    
    72
    
    
    
    145
    *EWCO  Marlette
    
    
    1
    
    
    
    0
    
    
    
    4
    
    
    
    5
    **Steelbank
    
    
    7
    
    
    
    0
    
    
    
    0
    
    
    
    7Total
    
    
    43
    
    
    
    41
    
    
    
    76
    
    
    
    160
   *
    
    plus 2 part-time**
    
    plus 1 part-time Our future performance depends on the continued service of our key sales, production and
senior management personnel and consultants. Approximately 117 EWCO employees are covered by a collective bargaining agreement with the
International Brotherhood of Teamsters that expires on October 15, 2006. The Teamsters have
represented employees at the Marysville facility since 1967 and employees at the Marlette facility
since 2000. While we believe our relations with our employees are good, if we are unable to renew the
collective bargaining agreements on mutually agreeable terms, it could result in strikes, closing
our 14




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manufacturing facilities or limiting their operations, labor disruptions and increased labor
costs, which would increase the costs of producing our products. Financial Information about Geographic Areas The following table sets forth on a proforma basis (after giving effect to the acquisition of
EWCO and Steelbank, beginning in 2002) information regarding our revenues from the United States
and Canada and long-lived assets located in the United States and Canada: Year Ended December 31,Revenues By Country
    
    2004
    
    
    2003
    
    
    2002(dollars in thousands)United States
    
    $
    43,188
    
    
    $
    26,769
    
    
    $
    24,844Canada
    
    $
    7,849
    
    
    $
    7,162
    
    
    $
    7,792
 As of December 31,Long-Lived Assets Located In
    
    2004
    
    
    2003(dollars in thousands)United States
    
    $
    568
    
    
    $
    938Canada
    
    $
    67
    
    
    $
    73
 Where You May Obtain Information We File With The SEC We file annual, quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy any materials we file with the SEC at the SECs Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet
site that contains reports, proxy and information statements and other information regarding
issuers, such as us, that file electronically with the SEC. The address of the SECs web site is
http://www.sec.gov. The
Company is currently developing a Web site at
http://www.tarponind.com. We make available
free of charge on or through our Web site, our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. We will voluntarily provide
electronic or paper copies of our filings free of charge upon request. RISK FACTORS An investment in our common shares involves a high degree of risk. You should carefully
consider the specific factors listed below, together with the cautionary statement under the
caption Cautionary Statement Regarding Forward Looking Statements and the other information
included in this report, before purchasing our common shares. If any of the following risks
actually occur, our business, financial condition or results of operations could be adversely
affected. In such case, the trading price of our common shares could decline, and you may lose all
or part of your investment. 15




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##### Table of Contents



Risks Relating to Our Business We and our acquired companies have a history of losses, and may not achieve profitability in the
future, which would adversely affect the price of our common shares. Tarpon, our parent company, does not have any revenue generating operations. It operates
through its recently acquired operating subsidiaries, EWCO and Steelbank and Haines Road. From our
inception on January 16, 2002 through December 31, 2004, Tarpon did not generate any revenues and
incurred net losses of approximately $3,411,380 Tarpon has funded such losses and a portion of its
acquisition costs through equity investments, borrowings, paid from the proceeds of our initial
public offering. In addition, EWCO incurred a net loss of approximately $1.3 million in 2003. If we
do not attain profitability, the market price of our common shares will likely decline. We expect our expenses to increase, which could result in losses or frustrate our business
strategy. We expect to incur increased depreciation expenses in connection with our capital improvements
plans and expenses in connection with grants of options to non-employees. In addition, acquisition
expenses, interest, and other expenses from our 2004 note financing began to increase our costs
beginning in our second quarter of 2004. Our expenses might be greater than we expect, which might
result in losses, and it is possible that our business strategy will not be successful. We currently have no commitment for mortgage financing for the Haines Road real estate, and if we
fail to obtain it within 90 days of the closing date, our Haines Road business might have to
discontinue its operations for a significant time, we could be subjected to onerous lease terms
even if we are allowed to remain on the premises, and we would be liable for damages for breaching
our purchase agreement. We currently have no commitment for the mortgage financing we need to complete the acquisition
of the Haines Road real estate. We have only 90 days after the closing of our acquisition of
Haines Roads operating assets to close our purchase of the Haines Road real estate, although the
owner has agreed to extend our use of the premises for up to one year if we are unable to close our
purchase of the Haines Road real estate within this 90-day period. The proceeds of our initial
public offering are not sufficient to fund the acquisition of the Haines Road real estate, and we
have assumed that we will be able to obtain approximately $3,019,000 (Cdn.$3,700,000) in mortgage
financing to complete the acquisition. If we are unable to obtain that financing and complete the
acquisition of the Haines Road real estate within the 90-day period, we could be evicted from the
premises after the extended lease term, which would likely require us to discontinue Haines Roads
business for a significant period of time or even permanently. Even if the landlord would agree to
allow us to continue to operate the Haines Road assets on the premises after the extended lease
term, we could be subjected to burdensome lease terms, including significantly increased rent or
restrictions on our use of the premises, which could make it unprofitable, inefficient or
impractical to operate the Haines Road business at that location. Even if we could find another
suitable location on terms and conditions acceptable to us, we would incur substantial costs and
disruption of our business if we were required to move our Haines Road assets to a different
location. We would also be subject to damage claims for failure to acquire the Haines Road real
estate pursuant to our purchase agreement. 16




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Our level of indebtedness materially affects our operations and even our survival. Excluding indebtedness we repaid from the proceeds of our initial public offering, as of
December 31, 2004 our total consolidated indebtedness for borrowed money, including current
maturities, was approximately $9,602,000. Subject to the limits on EWCO and Steelbank pursuant to
their credit facilities, we may incur additional debt in the future. Our level of indebtedness and
the debt servicing costs associated with that indebtedness will require us to dedicate a
substantial portion of our cash flow from operations to payments on our debt, reducing cash flow
available for working capital, capital expenditures, acquisitions and other general corporate
purposes. In addition, a material default in our indebtedness obligations could result in the
failure of our business. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Contractual Obligations for a description of the maturities of our
long-term debt. Covenant restrictions in our credit facilities may limit our ability to operate our business and,
if we do not comply with them, may prevent us from borrowing under those facilities and may require
us to seek to refinance our loans. EWCO has a credit facility secured by all of its personal property. Its loan agreement
requires it to maintain a minimum debt service coverage ratio and minimum tangible net worth. It
also generally prohibits dividends and limits EWCOs ability to make capital expenditures and incur
additional debt. Steelbank has a credit facility secured by all of its assets. Its credit
facility prohibits Steelbank from guaranteeing additional indebtedness, incurring indebtedness,
creating liens, paying dividends, making certain types of investments, entering into transactions
with affiliates, making capital expenditures in excess of $500,000 Canadian dollars in any fiscal
year, selling assets, merging with other companies or entering into any transactions outside of the
ordinary course of business. It also requires compliance with several financial covenants,
including adjusted net worth, debt service coverage and interest coverage covenants. These
covenants affect our ability to operate our business and may limit our ability to take advantage of
potential business opportunities as they arise. Moreover, our failure to comply with the financial
or other covenants could result in an event of default that, if not cured or waived, could prevent
us from borrowing under our credit facilities and could cause us to seek to refinance our
borrowings. We intend to seek approximately $3,019,000 (Cdn.$ 3,700,000), in mortgage financing
for Haines Roads real estate, although we currently have no commitment for the mortgage financing. Rising interest rates will have a substantial impact on our interest expense under our working
capital loans and will impact our ability to make our debt payments. Interest under our existing and proposed working capital facilities accrues at fluctuating
rates. Rising interest rates could have a substantial impact on our interest expense and will
impact our ability to make our debt payments. As of December 31, 2004, each 1% increase in prime
rates would result in an approximate increase of $175,000 in our yearly interest expense under such
facilities, assuming they are at the maximum permitted amounts. Our financial resources are not sufficient to finance any additional acquisitions. We believe that our financial resources will be adequate to satisfy our operating and capital
requirements for at least the next 12 months, except for additional acquisitions beyond the Haines
Road acquisition, unless they are made with our common shares. If we are unable to 17




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consummate additional acquisitions with our common shares, we will be required to raise
capital through additional sales of debt or equity securities, which might not be possible, or
forego the acquisition. We do not have a combined operating history with our acquired companies, so historical financial
information is not necessarily a good indicator of future results of operations or financial
condition; we have limited experience operating and integrating steel tube and pipe and steel
storage rack system manufacturers and distributors. Over the last twelve months, we acquired EWCO, Steelbank and Haines Road. All of our senior
management group joined us in 2004 or later, and two senior EWCO managers resigned following our
purchase of EWCO. As a result, our experience as a unified enterprise in operating steel
manufacturers and distributors is very limited, and the financial information regarding our
acquired companies included in this report substantially reflects their operations before we
acquired, managed and controlled them and may not be indicators of their future results of
operation or financial condition. In addition, our lack of a combined operating history may result
in difficulty integrating our operations, service interruptions to our customers, inefficiencies
and conflicts. Our success depends on our ability to attract and retain key personnel. Our present and future performance depends on the continued service of our key sales,
production and senior management personnel and consultants. Our key employees include J. Peter
Farquhar, our Chief Executive Officer, James T. House, our Senior Vice President, Chief Financial
Officer and Chief Accounting Officer, Patrick J. Hook, our President and Chief Operating Officer,
C. David Weaver, Vice President of Sales & Engineering in EWCOs SpaceRak division, Jerry
Cunningham, EWCOs General Manager of Operations, and Barry Seigel, Mark D. Madigan and Jeffrey
Greenberg, former owners of Steelbank who now manage its and, in the case of Mr. Madigan, also
EWCOs sales and distribution activities, all of whom became associated with us in the last ten
months. We have also engaged Bainbridge Advisors, Inc., an advisory firm primarily owned by Gary
D. Lewis, our former Chairman of the Board, President and Chief Executive Officer, to provide
general advice and services and to assist us in completing and integrating our acquisitions. The
loss of the services of any of these individuals or entities could have an adverse effect on us.
We do not maintain any significant key man life insurance on any of our key personnel. Charles Vanella, the former Chief Executive Officer and President of Tarpon and EWCO, and
Jason Vines, the former Chief Accounting Officer of Tarpon and EWCO, our current principal
operating subsidiary, resigned approximately four months after we acquired EWCO. In August 2004,
we entered into a Termination Agreement with Mr. Vanella, pursuant to which he resigned from all of
his positions with us and agreed to render consulting services to us for one year. Mr. Vanella had
served as President of EWCO since 1998, as Chief Executive Officer of EWCO since April 2004, and as
one of its officers since 1995 and was its sole shareholder at the time of our purchase of EWCO in
April 2004. In addition, Mr. Vines resigned in October 2004. Mr. Vines is Mr. Vanellas
son-in-law and served EWCO in a financial capacity from April 2000 to February 2001 and from
February 2003 to October 2004. The Chief Executive Officer functions have been assumed by J. Peter
Farquhar, Patrick J. Hook has assumed the President and Chief Operating Officer functions, and
James T. House has assumed the Chief Accounting Officer function on an interim basis. 18




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Our internal financial reporting procedures are in development and we will need to allocate
significant resources to meet applicable internal financial reporting standards. Until April 2004, we consisted only of a holding company with no operations. In April and May
2004, we acquired EWCO and Steelbank. These companies were established private companies with
accounting procedures not suitable for public company reporting. In February 2005, we acquired
Haines Road. This was one operation of a larger private company, again with accounting procedures
which were not suitable for public company reporting. Our Independent Registered Public Accounting Firm has identified a variety of deficiencies in
our internal controls over financial reporting. These deficiencies stem in significant part from
the acquisition policy which we are following in which private, unrelated companies are being
combined. Eight of these deficiencies were classified as significant which when aggregated meet
the definition of a material weakness in our internal control. A material weakness is a
significant deficiency, or a combination of significant deficiencies, that results in more than a
remote likelihood that a material misstatement of the annual or interim financial statements will
not be prevented or detected. The significant deficiencies are as follows:  A.
    A lack of formalized accounting policies and procedures, including written procedures
for monthly, quarterly and annual closing of financial books and records.B.
    A lack of common systems or a common chart of accounts and use of spreadsheets to
perform consolidations, which resulted in errors, andC.
    A lack of review and oversight of the reporting process which has resulted in the
inability to detect errors.D.
    Insufficient process to ensure financial statements adequately disclose information
required by Generally Accepted Accounting Principles (GAAP)E.
    Account reconciliations and supporting documentation not prepared on a timely basis.F.
    Duties and control activities with the finance function have not been appropriately
segregated.G.
    The company does not have a formal process to ensure that appropriate system access is
granted.H.
    A lack of adequate process to identify and ensure that non-standard journal entries are
subject to an appropriate level of review. In addition, our independent auditors have informed us that they do not believe we have
the resources or knowledge to adequately complete the process of documenting, testing, and
evaluating our internal controls over financial reporting as required by section 404 of the
Sarbanes-Oxley Act, which could result in failure to file the appropriate reports with the SEC. As a public company, we have significant requirements for enhanced financial reporting and
internal controls. We are taking steps to unify the financial reporting of all of our component
companies, to increase our accounting and information technology staff and to put in place internal
controls concerning accounting entries and adjustments, with full documentation, which are
responsive to issues raised by our independent auditors, and, as of this time, we have made
progress on these points. We have hired additional staff and are in the initial planning phase of
upgrading our information technology systems. We expect these steps to be completed by December 31,
2005, but it is possible that they might not be completed by then. 19




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These efforts require significant time and resources. If we are unable to establish
appropriate internal financial reporting controls and procedures, our reported financial
information may be inaccurate and we will encounter difficulties in the audit or review of our
financial statements by our independent auditors, which in turn may have material adverse effects
on our ability to prepare financial statements in accordance with generally accepted accounting
principles and to comply with our SEC reporting obligations. Sale and distribution of our products by Steelbank is expected to lead to the loss of a substantial
number or all of Steelbanks other manufacturer sources and may result in supply interruptions to
its customers. Steelbank is expected to lose 90% of its existing manufacturer sources as a result of
Steelbanks direct sale and distribution of EWCO and Haines Road products. In particular,
manufacturers that compete with our subsidiaries are expected to stop using Steelbank to distribute
or sell their products. For the year ended December 31, 2004, approximately $6,507,000, or 80%, of
Steelbanks revenues were derived from products made by manufacturers other than EWCO or Haines
Road, although approximately $5,856,000, or 90%, of those sales were of products that EWCO or
Haines Road are capable of manufacturing. Loss of these suppliers could adversely affect
Steelbanks ability to fulfill customer orders, resulting in damage to Steelbanks customer
relationships. Our products are viewed as commodities, and are subject to intense competition based on price. Our structural and mechanical steel tubing and steel storage rack systems products are
generally a commodity. As a result, we are subject to intense competition, principally based on
price and also based on how closely the product conforms to specifications, product availability,
delivery and service. Some of our competitors are larger than we are, have larger product lines,
have more diversified businesses, have well-established reputations and customer relationships and
have greater financial, engineering, manufacturing, marketing, distribution and management
resources than we do and are more able to engage in price competition. Our products have limited geographic markets. Because of the size and weight of structural and mechanical steel tubing and the resulting
costs of transportation and price competition, it is generally not cost effective to ship these
products more than 800 miles from the manufacturing plant. This and customers short lead-time
requirements limit the market for our steel tubing products. The volatile nature of steel prices could adversely affect our sales and operating profits. The cost of steel for manufacturing our products represented approximately 66% of EWCOs
revenues in 2004. As a result, the steel industry, which is highly volatile and cyclical in nature,
materially affects our business. EWCOs average steel costs increased approximately 85% from 2003
to 2004. Changes in steel prices have a significant impact on the margins for our products. While
we attempt to recover any increase in steel costs by increasing the price of our products,
increases in the prices of our products might not fully compensate for steel price increases and
can lag behind increases in steel prices, adversely affecting our gross profit margins. 20




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We are dependent on a few suppliers for a significant portion of our steel, so interruption of that
supply could impair our ability to manufacture our products or require us to pay higher prices to
obtain steel. In 2004, EWCO purchased approximately 73% in dollar value of its steel from a total of four
suppliers. While we believe steel is generally available from a number of suppliers, the loss of
any of our present suppliers, interruption of production at one or more of these suppliers or any
other disruption in the supply of steel from these suppliers could impair our ability to
manufacture our products or require us to pay higher prices to obtain steel from other sources. We
do not intend to maintain significant inventories of steel. A majority of our employees are covered by collective bargaining agreements that could subject us
to additional labor costs or strikes. As of March 13, 2005, approximately 117 EWCO employees are covered by a collective bargaining
agreement with the International Brotherhood of Teamsters that expires in October 2006. While we
believe our relations with these employees are good, if we are unable to renew the collective
bargaining agreements on mutually agreeable terms, it would result in labor disruptions, strikes,
plant shutdowns and increased labor costs, which could result in lost sales and increase the costs
of producing our products. We are dependent on third parties to transport our products, so their failure to transport our
products could adversely affect our earnings, sales and geographic market. We use third parties for the majority of our shipping and transportation needs. If these
parties fail to deliver our products in a timely fashion, including due to lack of available trucks
or drivers, labor stoppages, or traffic delays at the U.S. or Canadian borders, or if there is an
increase in transportation costs, including due to increased fuel costs, it would have a material
adverse effect on our earnings and could reduce our sales and geographic market. There are risks associated with our acquisition strategy, including our inability to successfully
complete acquisitions, our assumption of liabilities, dilution of your investment, significant
costs and additional financing required. We intend to expand our markets and customers through strategic acquisitions of other steel
tubing, steel storage rack system and related product manufacturers, distributors or both, although
we have no agreement or understanding for any other acquisition. Risks associated with our current
and potential acquisitions include the disruption of our ongoing business, problems retaining the
employees of the acquired business, assets acquired proving to be less valuable than expected, the
potential assumption of unknown or unexpected liabilities, costs and problems, the inability of
management to maintain uniform standards, controls, procedures and policies, the difficulty of
managing a larger company, the risk of becoming involved in labor, commercial or regulatory
disputes or litigation related to the new enterprises and the difficulty of integrating the
acquired operations and personnel into our existing business. We intend to use common shares or other securities to finance a portion of the consideration
for future acquisitions, either by issuing them to pay a portion of the purchase price or selling
additional shares to investors to raise cash to pay a portion of the purchase price. If our common
shares do not maintain sufficient market value or potential acquisition candidates are unwilling to
accept our common shares as part of the consideration for the sale of their 21




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businesses, we will be required to raise capital through additional sales of debt or equity
securities, which might not be possible, or forego the acquisition opportunity, and our growth
could be limited. In addition, securities issued in such acquisitions may dilute the holdings of
our current or future shareholders. Steelbanks and Haines Roads operations are located in Canada, and exchange rate fluctuations
between the U.S. and Canadian dollar will affect our results of operations. A substantial amount of our sales and operating costs are in Canadian dollars. As a United
States company, we will be exposed to cash flow and earnings volatility as a result of fluctuations
in relative currency values. In particular, our results of operations may be adversely affected by
a strengthening of the United States dollar against the Canadian dollar. A strengthening of the
Canadian dollar against the United States dollar would adversely affect our ability to export
products manufactured in Canada, such as by Haines Road. Seasonal fluctuations affect demand for our products. We expect seasonal fluctuations in demand for our products. Historically, the demand for our
steel tubing products typically peaks during the first and second calendar quarters, while demand
for our steel storage rack systems typically peaks during the third and fourth calendar quarters.
The timing of these fluctuations has been dependent on the overall economy and may change as our
customer and product mix change. Equipment failures or casualties will interfere with production and increase costs. Our manufacturing processes depend on production mills and related equipment, which are
occasionally out of service as a result of mechanical failures. We may experience material plant
shutdowns or periods of reduced production as a result of equipment failures. Interruptions in our
production capabilities will increase production costs and reduce our sales and earnings.
Furthermore, any interruption in production capability may require us to make capital expenditures
to remedy the situation, which could have a negative effect on our profitability and cash flows.
In addition to equipment failures, our facilities are also subject to the risk of catastrophic loss
due to unanticipated events such as fires, loss of energy, explosions and adverse weather
conditions. We are dependent on a small sales force for a majority of our sales, so losing any of them would
adversely affect our business. We depend on a sales force of approximately seven people for a majority of our sales, which
includes one Haines Road sales employee. Our sales force accounted for approximately 92% of EWCOs
sales in 2004. Therefore, the loss of any of our sales employees may have an adverse effect on our
business, financial condition and results of operations. We are dependent on our distributors for a significant portion of our SpaceRak sales, so their
failure to sell our products adequately would adversely affect our business. We depend on our distributors for a significant portion of our sales of SpaceRak products. If
our distributors fail to market, promote and sell our products adequately, our business, financial
condition and results of operations would be adversely affected. 22




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Purchasers of our products may assert product liability claims against us. Actual or claimed defects in our products could give rise to products liability claims against
us. We might be sued because of injury or death, property damage, loss of production or suspension
of operations resulting from actual or claimed defects in our products. Regardless of whether we
are ultimately determined to be liable, we might incur significant legal expenses not covered by
insurance. In addition, products liability litigation could damage our reputation and impair our
ability to market our products. Litigation could also impair our ability to retain products
liability insurance or make our insurance more expensive. EWCO has products liability insurance
with a liability limit of $3,000,000. We could incur product liability claims in excess of our
insurance coverage or that are subject to substantial deductibles, or we may incur uninsured
product liability costs. If we are subject to an uninsured or inadequately insured products
liability claim based on our products, our business, financial condition and results of operations
would be adversely affected. Environmental, health and safety laws regulating the operation of our business could increase the
costs of producing our products and expose us to environmental claims. Our business is subject to numerous U.S. and Canadian local, state, provincial and federal
laws and regulations concerning environmental, health and safety matters, including those relating
to air emissions, wastewater discharges and the generation, handling, storage, transportation,
treatment and disposal of hazardous materials. Violations of such laws and regulations could lead
to substantial fines and penalties. Also, there are risks of substantial costs and liabilities
relating to the investigation and remediation of past or present contamination, at current or
former properties used or owned by us and at third-party disposal sites, regardless of fault or the
legality of the original activities that led to such contamination. Moreover, future developments,
such as changes in laws and regulations, more stringent enforcement or interpretation of laws and
regulations, and claims for property damage or personal injury would cause us to incur substantial
losses or expenditures. Although we believe we are in substantial compliance with all applicable
laws and regulations, such laws, regulations, enforcement proceedings or private claims might have
a material adverse effect on our business, results of operations and financial condition. Risks Relating to Our Common Shares The market price of our common shares could fluctuate significantly and an active trading market
for the common shares might not develop. Before our initial public offering, there was no public market for our common shares.
Although our common shares are listed on the American Stock Exchange, an active trading market
might not develop. If an active trading market for the common shares does not develop or is not
maintained, holders of common shares might find it difficult to resell, or be unable to sell, their
common shares. The market price of our common shares might be highly volatile. Also, changes in
our business, our results of operations, our financial condition, our industry, the economy, stock
markets in general and trading in our stock in particular could cause the market price of our
shares to fluctuate substantially. 23




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We may not be able to maintain our listing on the American Stock Exchange, which may adversely
affect the ability of purchasers in our initial public offering to resell their securities in the
secondary market. Although our common shares are listed on the American Stock Exchange, we might not meet the
criteria for continued listing on the American Stock Exchange in the future. If we are unable to
meet the continued listing criteria of the American Stock Exchange and became delisted, trading of
our common shares could be conducted in the over-the-counter market in the so-called pink sheets
or, if available, the NASDs Electronic Bulletin Board. In such case, an investor would likely
find it more difficult to dispose of our securities or to obtain accurate market quotations for
them. If our common shares were delisted from the American Stock Exchange, they may become subject
to Rule 15g-9 under the Securities Exchange Act of 1934, which imposes sales practice requirements
on broker-dealers that sell such securities to persons other than established customers and
accredited investors. Application of this rule could adversely affect the ability, willingness
or both of broker-dealers to sell our securities and may adversely affect the ability of purchasers
in our initial public offering to resell their securities in the secondary market. The market price of the common shares may be depressed by shares eligible for future sale, shares
reserved for future issuance upon the exercise of options and warrants and registration rights we
have granted. Future sales of substantial amounts of common shares in the public market or the perception
that such sales could occur could adversely affect the market price of the common shares. As of
March 31, 2005, there are 4,640,130 common shares outstanding, options and warrants to purchase an
aggregate of 1,105,585 common shares outstanding after 1,500 options expired upon the resignation
of an employee, and an additional 303,215 common shares reserved for issuance upon exercise of
options, which have not yet been granted under our 2004 stock option plan. The common shares
underlying these options and warrants will be eligible for sale under Rule 144 beginning at varying
times from the date of this report through 12 months after the option or warrant is exercised. We
have registered for resale 758,800 of these common shares, including 465,000 common shares subject
to warrants issued in our 2004 note financing, 100,000 common shares subject to warrants issued to
designees of the placement agent in our 2004 note financing, and 193,800 common shares subject to
warrants being granted to the lead underwriters in connection with our initial public offering, and
we expect to file a registration statement covering the common shares issuable under our 2004 stock
option plan. Provisions of our Articles of Incorporation, Bylaws and corporate law have potential anti-takeover
effects. Some provisions in our articles of incorporation and bylaws could delay or prevent a change in
control of the Company, even if that change might be beneficial to our shareholders. Our restated
articles of incorporation and bylaws contain provisions that might make acquiring control of us
difficult, including provisions limiting rights to call special meetings of shareholders and
regulating the ability of our shareholders to nominate directors for election at annual meetings of
our shareholders. In addition, our board of directors has the authority, without further approval
of our shareholders, to issue preferred shares having such rights, preferences and privileges as
the board of directors may determine. Any such issuance of preferred shares could, under some
circumstances, have the effect of delaying or preventing a 24




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change in control of the Company and might adversely affect the rights of holders of common
shares. In addition, we are subject to Michigan statutes regulating business combinations, takeovers
and control share acquisitions, which might also hinder or delay a change in control of the
Company. Anti-takeover provisions in our restated articles of incorporation and bylaws,
anti-takeover provisions that could be included in the preferred shares when issued and the
Michigan statutes regulating business combinations, takeovers and control share acquisitions can
depress the market price of our securities and can limit the shareholders ability to receive a
premium on their shares by discouraging takeover and tender offer bids, even if such events could
be viewed as beneficial by our shareholders. Our directors serve staggered three-year terms, and directors may be removed only for cause.
Our restated articles of incorporation also set the minimum number of directors constituting the
entire Board at three and the maximum at fifteen, and they require approval of holders of 90% of
our voting shares to amend these provisions. These provisions could have an anti-takeover effect
by making it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise
or by removing incumbent officers and directors. These provisions could delay, deter or prevent a
tender offer or takeover attempt that a shareholder might consider in his or her best interests,
including those attempts that might result in a premium over the market price for the common shares
held by our shareholders. See Description of Securities. The underwriters of our initial public offering continue to have significant influence over us. We have agreed that for a period of two years from the closing of our initial public offering
in February 2005, we will allow Joseph Gunnar & Co., LLC the right to appoint a non-voting observer
to our board of directors. Joseph Gunnar & Co., LLC expects to appoint Stephan Stein, its chief
operating officer, as its non-voting observer. The observer will be entitled to attend all
meetings of the board of directors, to receive all notices and other correspondence and
communications we send to the board of directors and to receive any compensation that may be paid
to our non-employee directors. We have also entered into an agreement for Joseph Gunnar & Co., LLC
to provide non-exclusive investment banking services to us indefinitely, unless either party
notifies the other of its intention not to renew before the expiration of the then current one-year
term. These arrangements may enable Joseph Gunnar & Co., LLC to exert significant influence over
us through the presence of its designee at our board meetings and through its provision of
investment banking services to us. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Some of the statements in this report are forward-looking statements. Forward-looking
statements include statements relating to our performance in the Managements Discussion and
Analysis of Financial Condition and Results of Operations, and Business sections of this report.
In addition, we may make forward-looking statements in future filings with the Securities and
Exchange Commission and in written materials, press releases and oral statements issued by us or on
our behalf. Forward-looking statements include statements regarding the intent, belief or current
expectations of us or our officers, including statements preceded by, followed by or including
forward-looking terminology such as may, will, should, believe, expect, anticipate,
plan, intend, propose, estimate, continue, predict or similar expressions, with respect
to various matters. Our actual results are likely to differ materially 25




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from those projected in the forward-looking statements due to numerous factors, particularly
those discussed in Risk Factors. All forward-looking statements in this report are based on
information available to us on the date of this report. We do not undertake to update any
forward-looking statements that may be made by us or on our behalf in this report or otherwise. 
 ITEM 2. PROPERTIES EWCO leases approximately 200,000 square feet of manufacturing and office space in Marysville,
Michigan, approximately 60 miles north of Detroit, and approximately 40,000 square feet of
manufacturing space in Marlette, Michigan, approximately 80 miles north of Detroit. Approximately
7,000 square feet of the Marysville facilities is office space. Average monthly rent for the two
facilities is $22,352 a month, excluding occupancy costs, and the leases expire in October 2006.
We believe that these facilities are more than suitable and adequate for our current needs, and
that EWCO has significant additional manufacturing capacity that will allow for substantial
expansion of our business and number of employees. Haines Road currently leases, and has agreed to buy, approximately 100,000 square feet of
manufacturing and office space on Haines Road in Mississauga, Ontario, Canada, a suburb of Toronto.
Approximately 15,000 square feet of the Mississauga facility is office space. We currently lease
the facility for a monthly rent of approximately $62,300 (Cdn.$75,000) a month, excluding occupancy
costs, until the closing of the purchase of the real estate. We expect to finance part of the
purchase price of the Haines Road real estate with approximately $3,019,000 (Cdn.$3,700.000) of
mortgage loans, although we currently only have a commitment for approximately $979,000
(Cdn.$1,500,000) of seller financing and no commitments for the remainder of such financing. We
believe that this facility is more than suitable and adequate for our current needs, and that
Haines Road has significant additional manufacturing capacity that will allow for substantial
expansion of our business and number of employees. Steelbank leases approximately 18,000 square feet of office and warehouse space in
Mississauga, Ontario, Canada, a suburb of Toronto. Monthly rent for the facility is currently
$8,433 a month, excluding occupancy costs, and the lease expires, unless otherwise renewed, on June
30, 2006. We believe that these facilities are suitable and adequate for our current needs,
although we intend to combine the Steelbank offices and warehouse with the Haines Road facility,
and either terminate its lease or sublease the existing Steelbank facility. 
 ITEM 3. LEGAL PROCEEDINGS We are involved from time to time in routine litigation incidental to our business. This
litigation arises principally from claims of defects in our products sold, from governmental agency
proceedings relating to occupational safety and health, wage and hour laws and similar employment
and workplace regulations, from workers compensation, and from employment termination claims.
Although the amount of any liability that could arise with respect to these actions cannot
accurately be predicted, in our opinion, such liability will not have a material adverse effect on
our financial position, results of operations or cash flows. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS By written consent dated October 16, 2004, (before our initial public offering), our
shareholders unanimously approved an amendment and restatement of our Articles of Incorporation and
Bylaws, elected J. Peter Farquhar as a Class I director with a term expiring at 26




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the annual meeting of shareholders in 2007, Dr. Robert Pry, as a Class II director with a term
expiring at the annual meeting of shareholders in 2005, and Michael Ard, as a Class III director
with a term expiring at the annual meeting of shareholders in 2006, approved our 2004 Stock Option
Plan and ratified previous corporate actions. SUPPLEMENTAL ITEM.EXECUTIVE OFFICERS OF THE REGISTRANT Our current executive officers and the positions held by them are as follows: ExecutiveOfficerName
    
    Since
    
    Age
    
    PositionJ. Peter Farquhar
    
    8/04
    
    
    49
    
    
    Chairman of the Board, Chief Executive Officer, Secretary and
Class I DirectorPatrick T. Hook
    
    2/05
    
    
    38
    
    
    President and Chief Operating OfficerJames T. House
    
    8/04
    
    
    43
    
    
    Senior Vice President, Chief Financial Officer, Chief
Accounting Officer, Treasurer and Assistant Secretary
 J. Peter Farquhar.Mr. Farquhar has served as our Class I director since December 2003, our
Secretary since March 2004, our non-officer Chairman of the Board since April 2004 and our Chief
Executive Officer since August 2004. Mr. Farquhar has served as a director of EWCO since April
2004 and of Steelbank since May 2004 and as Chief Executive Officer of EWCO and Steelbank since
August 2004. He also served as our, EWCOs and Steelbanks President from August 2004 to February
2005. Mr. Farquhar also served as our Treasurer from April 2004 to August 2004. Since April 2002,
he has also served as Project Manager for FCL Builders, Inc., a design-build general contractor,
managing commercial construction projects in the Chicago area. From June 2001 to March 2002, he
served as a self-employed consultant, performing work for several companies in the primary steel
and steel tubing industries. From November 2000 to May 2001, he served as Chief Operating Officer
and from July 2000 to November 2000, as Vice PresidentIntegration, for Concord Steel, a
fabricated steel counterweight manufacturer and a retailer of certified chemistry steel plate.
From January 1998 to June 2000, he served as Director of Business Development, and from March 1995
to January 1998, he served as Vice President of Operations, of Welded Tube of America, a
manufacturer of structural steel tubing. Before that, he served in various senior management and
operating capacities with Katayama American Company, a roll formed and stamped steel automotive
supplier, and ITT Automotive Inc., a tubular and stamped steel automotive supplier. Mr. Farquhar
received a BA Sc degree in Mechanical Engineering from the University of Waterloo and an MBA from
the University of Michigan. Mr. Farquhar is a party to an employment agreement with us that
requires us to elect him to the offices he has agreed to hold with us. Patrick J. Hook. Mr. Hook has served as our President and Chief Operating Officer since
February 2005. Mr. Hook has served as Operations Manager for Copperweld, Inc., Chicago Division, a
steel tubing manufacturer, from September 2001 to February 2005. In this capacity, Mr. Hook has
been responsible for all operating activities for the Chicago and Bedford Park divisions of
Copperweld. From March 2001 to September 2001, Mr. Hook served as Plant Manager of Copperwelds
Birmingham Division. From November 1999 to March 2001, Mr. Hook reported directly to the
Copperweld U. S. Structural Division Vice President. In this capacity, Mr. Hook was responsible
for integrating the operations of four U.S. Structural Steel 27




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Tubing Divisions that were acquired through acquisition. From August 1997 through October
1999, Mr. Hook was the Plant Manager of LTV Corporation  Youngstown Division, a steel
manufacturer. Mr. Hooks previous experience includes several positions of increasing
responsibilities in the engineering and operating arenas while employed with LTV Steel at the
Indiana Harbor Works Division. Mr. Hook received a B.S. in mechanical engineering from Michigan
Technological University and is a graduate of the University of Michigan Executive Manufacturing
Program. Mr. Hook is a member of the Tube and Pipe Association, International and of the Tube and
Pipe Producing Technology Council. Mr. Hook is a party to an employment agreement with us that
requires us to elect him to the offices he has agreed to hold with us. James T. House.Mr. House has served as our Senior Vice President, our Chief Financial
Officer and Treasurer and as EWCOs Chief Financial Officer since August 2004 and as our EWCO Chief
Accounting Officer since October 2004. From December 2001 until July 2004, Mr. House served as
Vice President  Chief Financial Officer of New Horizons Computer Learning Centers, Inc, an
independent information technology training company. From 1995 until 2001, Mr. House served as
Vice President  Chief Financial Officer of Superior Consultant Holdings Corporation, an
international health care consulting firm. Mr. House received a B.A. in Business  Accounting from
Michigan State University. Mr. House is a party to an employment agreement with us that requires
us to elect him to the offices he currently holds. Our officers serve at the discretion of the board of directors. 28




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PART II 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Common Equity Our common shares have traded on The American Stock Exchange under the trading symbol TPO
since the February 14, 2005 effective date of our initial public offering. There was no
established public trading market for our common shares before February 14, 2005. The following
table sets forth, for the periods indicated, the high and low sales prices for our common shares as
reported by The American Stock Exchange. High
    
    
    LowFiscal Year Ending December 31, 2005First Quarter (2/14/05 to 3/22/05)
    
    $
    5.99
    
    
    $
    4.80
 As of March 22, 2005, we had 29 shareholders of record. Dividends We have never paid cash dividends on our common shares and do not expect to pay such dividends
in the foreseeable future. We currently intend to retain any future earnings for use in our
business. Any future payment of dividends will be in the sole discretion of our board of
directors. Credit agreements with our subsidiaries prohibit the payment of dividends. See
Managements Discussion and Analysis of Financial Condition and Results of Operations  Liquidity
and Capital Resources. Recent Sales of Unregistered Securities 1. From December 2002 through October 2003, we privately placed 114,688 newly-issued common
shares to six accredited investors, at a price of $5.97 per share, for gross proceeds of $685,000.
Our net proceeds, after deducting the expenses of the offering, were approximately $582,000. As
part of the issuance of these common shares, we agreed that upon completion of our initial public
offering, we would issue additional common shares to these purchasers so that the total common
shares they receive equals (1) 1.35 times the amount they invested in our initial public offering,
divided by (2) our initial public offering price per share. We issued 70,262 additional common
shares to these shareholders as a result of our initial public offering in February 2005, lowering
their effective purchase price to $3.70 a share. The common shares were issued in reliance on the
exemptions from registration contained in Sections 4(2) and 4(6) of the Securities Act and Rule 505
and 506 of Regulation D under the Securities Act. 2. In February and March 2004, we privately placed $150,000 of our junior subordinated secured
promissory notes to two of our existing accredited investor shareholders. The notes were issued at
their face amount, bore interest at 8% a year, 15% after January 5, 2005, and were paid in February
2005 at the closing of our initial public offering. The notes were secured by our assets and the
assets of our subsidiaries, but were subordinate to our subsidiaries secured bank financing. Our
net proceeds, after deducting the expenses of the offering, were approximately $146,000. We also
granted the purchasers in the February and March offerings warrants to purchase 30,000 common
shares at $5.00 a share. The warrants are 29




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exercisable for five years beginning August 16, 2005. The notes and warrants were issued in
reliance on the exemptions from registration contained in Sections 3(a)(3), 4(2) and 4(6) of the
Securities Act and Rule 505 and 506 of Regulation D under the Securities Act. 3. In March 2004, we issued 10,000 of our common shares to one of our consultants, in payment
of $50,000 for consulting fees. The common shares were issued in reliance on the exemptions from
registration contained in Sections 4(2) and 4(6) of the Securities Act. 4. In April 2004, we privately placed $2,000,000 of our junior subordinated promissory secured
notes to 27 accredited investors in our 2004 note financing. The notes were issued at their face
amount, bore interest at 8% a year, 15% after January 5, 2005, and were paid in the February 2005
closing of our initial public offering. The notes were secured by our assets and the assets of our
subsidiaries, but were subordinate to our subsidiaries secured bank financing. We also granted
the purchasers in the April offering warrants to purchase 435,000 common shares at $5.00 a share.
The warrants are exercisable for five years beginning August 16, 2005. Joseph Gunnar & Co., LLC, one of the underwriters in our initial public offering, was our
placement agent in our April 2004 $2,000,000 note financing. Joseph Gunnar & Co., LLC received
for its services (1) $200,000 in commissions and fees, (2) a $50,000 non-accountable,
non-refundable retainer ($25,000 of which was applied to our initial public offering and was
credited against its non-accountable expense allowance of our initial public offering), (3)
reimbursement of its out-of-pocket expenses, including the fees of its counsel, subject to (a) a
$35,000 limit on legal fees of its counsel in connection with blue sky matters and blue sky filing
fees, plus disbursements, and (b) a credit of $25,000 for a portion of the retainer received by the
placement agent, which was credited against its expenses, (4) a five year warrant to purchase
100,000 common shares at $6.25 a share, which was issued to its employee designees, (5) the right
to appoint a non-voting observer to our board of directors for two years from the completion of our
April 2004 note financing, and (6) a 12 month agreement to provide investment banking services to
us in consideration for a $7,500 a month retainer plus out-of-pocket expenses and success fees for
business combinations, other than EWCO, Haines Road and Steelbank. The agreement was subsequently
amended to provide for an indefinite term. Our net proceeds, after deducting the commissions and fees and the expenses of the offering,
were approximately $1,725,000. The notes and warrants were issued in reliance on the exemptions
from registration contained in Sections 3(a)(3), 4(2) and 4(6) of the Securities Act and Rule 506
of Regulation D under the Securities Act We have registered the resale by the warrant holders of the common shares underlying the
warrants described in Items 1 and 3 above to permit the warrant holders to resell these shares to
the public. 5. We effected a 1-for-3.69203259 reverse split in December 2003 and a 1-for-1.6176795 reverse
stock split in March 2004. The reverse stock splits were effected in reliance on the exemption
from registration contained in Section 3(a)(9) of the Securities Act. 6. In connection with our acquisition of Steelbank, we agreed to issue 60,636 of our common
shares to the three accredited investor former owners of Steelbank. These common shares were
issued at the February 2005 closing of our initial public offering in reliance on the exemptions
from registration contained in Sections 4(2) and 4(6) of the Securities Act. 30




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7. We granted designees of Bainbridge Advisors, Inc., one of our consultants, J. Peter
Farquhar, our Chief Executive Officer, James T. House, our Chief Financial Officer, Patrick J.
Hook, our President and Chief Operating Officer, Jeffrey Greenberg, Mark D. Madigan, and Barry
Seigel, former owners of Steelbank, J. Peter Farquhar, Dr. Robert H. Pry and Michael A. Ard, three
of our directors, and various employees (including Mr. Madigan), options to purchase 110,000,
50,000, 40,000, 40,000, 18,802, 18,802, 18,802, 10,000, 10,000, 10,000 and 22,500 common shares,
respectively, under our 2004 Stock Option Plan, and we have granted J. Peter Farquhar, one of our
directors, 2,000 common shares, all effective at the February 2005 closing of our initial public
offering. Bainbridge designated Gary D. Lewis and his son, Gary N. Lewis, who both perform
consulting work for us, as its designees. The common shares, the options, and the offer of the
underlying common shares upon exercise of the options, were granted in reliance on the exemptions
from registration contained in Rule 701 under the Securities Act and Section 4(2) of the Securities
Act. Offering Proceeds On February 17, 2005 and February 23, 2005 (with respect to the underwriters over-allotment
option), we completed our initial public offering (the Offering) of an aggregate of 3,277,500
newly-issued common shares, no par value, at a public offering price of $5.00 per share, for gross
proceeds to the Company of $16,387,500. The Offering was underwritten by a group of underwriters
for which Joseph Gunnar & Co., LLC, LaSalle St. Securities L.L.C. and Newbridge Securities
Corporation served as lead underwriters. The effective date of the Companys Registration
Statement on Form S-1 (file no. 333-120117) in connection with the Offering was February 14, 2005.
The Offering commenced on February 14, 2005 and closed on February 17, 2005 (February 23, 2005 with
respect to the underwriters over-allotment option) after the sale of all securities registered,
including the 427,500 shares offered by the Company pursuant to an option granted to the
underwriters to cover over-allotments. The following table provides information regarding the
Offering. The CompanyAmount Registered
    
    3,277,500 sharesAggregate Offering Price of
Amount Registered
    
    $16,387,500Amount Sold
    
    3,277,500 sharesAggregate Offering Price of
Amount Sold
    
    $16,387,500
 We also registered the selling shareholders resale of (1) up to 565,000 common shares they
would receive upon exercise of warrants issued in our 2004 note financing, although the warrants
are not exercisable, and thus the underlying common shares may not be resold, until at least August
16, 2005, and (2) up to 193,800 common shares underlying warrants granted to the lead underwriters
in our initial public offering, although the warrants are not exercisable, and thus the underlying
common shares may not be resold, during the period from the February 14, 2005 date of effectiveness
and commencement of sales to the public in our initial public offering until August 13, 2005, and
which exercise may take place after August 13, 2005 and until February 14, 2010. We will not
receive any of the proceeds from the resale of the common shares by the selling shareholders, but
we will receive the proceeds of their cash warrant exercises, although if they elect cashless
exercise of their warrants, we will receive no cash. The 31




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proceeds to the selling shareholders of their resale of common shares will depend on the
market price at the time of sale. The following table provides information concerning the estimated amount of expenses incurred
for the Companys account in connection with the Offering through March 29, 2005: PaymentsUnderwriting discounts and commissions
    
    $
    1,147,125Finders fees
    
    $
    Expenses paid to or for underwriters
    
    $
    491,625Other expenses
    
    $
    2,700,000
    **Total expenses
    
    $
    4,338,750
    **
 ** Estimated. The estimated net Offering proceeds to the Company after deducting the total estimated
expenses described above is $12,048,750. The following table provides information concerning the
amount of the net Offering proceeds to the Company used for the following purposes through March
29, 2005: PaymentsPurchases of real estate  deposits
on Haines Road
    
    $
    163,000Acquisition of other business(es)
    
    $
    5,690,000
    **Repayment of indebtedness
    
    $
    3,559,000Temporary
investments  working capital
    
    $
    2,636,750Other
    
    $
    Total uses
    
    $
    12,048,750
 ** Estimated. The estimated amount of expenses incurred for the Companys account in connection with the
Offering exceeds the Companys original estimate of expenses to be incurred. The increase in the
estimated expenses is principally the result of legal and accounting fees incurred by the Company
in connection with the Offering, which are estimated to be approximately $1.2 million higher than
originally estimated. The company plans to use the additional proceeds for capital projects or additional working
capital as business conditions dictate 32




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for Tarpon as of and for the years ended December 31,
2004, 2003 and 2002, for EWCO and Haines Road as of, and for the years ended December 31, 2003,
2002 and 2001, for Haines Road as of, and for the year ended, December 31, 2004, and for EWCO as
of, and for the three months ended, March 31, 2004, have been derived from our audited financial
statements, some of which appear elsewhere in this report together with the reports of Grant
Thornton LLP, Independent Registered Public Accounting Firm, whose report on EWCOs financial
statements includes an explanatory paragraph relating to an uncertainty concerning their ability to
continue as a going concern. Individual data for Steelbank has not been included because the same
is not deemed significant in relation to EWCO and Haines Road. The pro forma financial information restates the information as if (a) the acquisitions of
EWCO and Haines Road occurred as of January 1, 2004 for the statement of operations data, and the
acquisition of Haines Road occurred as of December 31, 2004 for the balance sheet data, but
excludes financial information related to Steelbank prior to the date of acquisition, (b) our
promissory notes issued in the 2004 note financing and the related warrants to purchase 565,000
common shares, with an estimated value of approximately $652,000, were issued at the same time, and
any unamortized portion of that value is written off at the beginning of the period, (c) the sale
of the 2,850,000 common shares offered by us in our initial public offering at the public offering
price of $5.00 per share occurred at the same time and we used the estimated net proceeds to pay
promissory notes and cash due in connection with the acquisitions of EWCO, Haines Road and
Steelbank and to pay our 2004 note financing, (d) we received approximately $5,318,363 in mortgage,
equipment and revolving credit financing, although we currently have no commitment for the mortgage
financing, and used the proceeds of that financing to pay a portion of the Haines Road purchase
price, and (e) we issued (1) 70,262 common shares issuable to purchasers of our common shares in
December 2002 to October 2003 to reduce their effective purchase price to approximately $3.70 a
share, (2) 60,636 common shares as part of Steelbanks purchase price, and (3) 2,000 common shares
to one of our directors for past services. See Notes to Pro Forma Financial Statements included in
this report. The pro forma combined financial data is presented for illustrative purposes only and
is not necessarily indicative of the results of operations or financial position that would have
occurred if the transactions had been completed at the dates indicated, nor is it necessarily
indicative of future results of operations or financial position of the combined company. For a
discussion of the adjustments made in presenting such pro forma financial data, see the pro forma
combined financial data and related notes appearing elsewhere in this report. You should read the selected financial data together with the financial statements and notes
to financial statements and with Managements Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this report. 33




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##### Table of Contents



PRO FORMA COMBINED Pro Forma CombinedYear Ended December 31, 2004Pre-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hainesacq.
    
    
    EWCO
    
    
    Sub.
    
    
    Offering
    
    
    Sub.
    
    
    Haines
    
    
    RoadTarpon
    
    
    EWCO
    
    
    Adjust
    
    
    Total
    
    
    Adjust
    
    
    Total
    
    
    Road
    
    
    Adjust
    
    
    Total(unaudited)(in thousands, except per share data)Statement of
Operations Data:Net revenues
    
    $
    37,622
    
    
    $
    10,548
    
    
    
    
    
    
    $
    48,170
    
    
    
    
    
    
    $
    48,170
    
    
    $
    15,397
    
    
    $
    (365
    )
    
    $
    63,202Gross margin
    
    
    3,749
    
    
    
    1,412
    
    
    
    
    
    
    
    5,161
    
    
    
    
    
    
    
    5,161
    
    
    
    2,913
    
    
    
    (4
    )
    
    
    8,070Interest expense, net
    
    
    1,237
    
    
    
    51
    
    
    
    
    
    
    
    1,288
    
    
    
    (849
    )
    
    
    439
    
    
    
    594
    
    
    
    (65
    )
    
    
    968Depreciation and
amortization
    
    
    141
    
    
    
    35
    
    
    
    (13
    )
    
    
    189
    
    
    
    
    
    
    
    189
    
    
    
    30
    
    
    
    (5
    )
    
    
    214Income (loss)
before taxes
    
    
    (2,065
    )
    
    
    496
    
    
    
    (13
    )
    
    
    (1,582
    )
    
    
    780
    
    
    
    (802
    )
    
    
    1,165
    
    
    
    (15
    )
    
    
    348Net income (loss)
    
    
    (1,995
    )
    
    
    381
    
    
    
    103
    
    
    
    (1,511
    )
    
    
    780
    
    
    
    (731
    )
    
    
    763
    
    
    
    (9
    )
    
    
    23Net income (loss)
per common share 
basic and diluted
    
    $
    (1.63
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.00Weighted average
number of common
shares outstanding
    
    
    1,227
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,638
 34




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##### Table of Contents



Pro Forma CombinedAs of December 31, 2004Offering
    
    
    Sub-
    
    
    
    
    
    
    HainesTarpon
    
    
    Adjust
    
    
    Total
    
    
    Haines
    
    
    Adjust
    
    
    Total(unaudited)(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    257
    
    
    $
    10,682
    
    
    $
    10,940
    
    
    $
    
    
    
    $
    (6,624
    )
    
    $
    4,315Working Capital
    
    
    (2,084
    )
    
    
    11,959
    
    
    
    9,875
    
    
    
    5,581
    
    
    
    (13,070
    )
    
    
    2,386Total assets
    
    
    21,708
    
    
    
    8,605
    
    
    
    30,313
    
    
    
    16,732
    
    
    
    (9,094
    )
    
    
    37,9512004 note financing obligations
    
    
    2,150
    
    
    
    (2,150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt, net of current portion
    
    
    1,314
    
    
    
    
    
    
    
    1,314
    
    
    
    
    
    
    
    5,622
    
    
    
    6,936Retained earnings (accumulated deficit)
    
    
    (3,411
    )
    
    
    (424
    )
    
    
    (3,835
    )
    
    
    12,935
    
    
    
    (12,935
    )
    
    
    (3,835
    )Shareholders equity (deficit) (1)
    
    
    (1,039
    )
    
    
    12,059
    
    
    
    11,020
    
    
    
    15,345
    
    
    
    (15,345
    )
    
    
    11,020
 Tarpon Industries, Inc.Year Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands except per share data)Statement of Operations Data:Net revenues
    
    $
    37,622
    
    
    $
    
    
    
    $
    Gross margin
    
    
    3,750
    
    
    
    
    
    
    
    Interest expense
    
    
    1,237
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    141
    
    
    
    
    
    
    
    Net income (loss) before taxes
    
    
    (2,065
    )
    
    
    (650
    )
    
    
    (766
    )Net income (loss)
    
    
    (1,995
    )
    
    
    (650
    )
    
    
    (766
    )Net income (loss) per common share  basic and
Diluted
    
    
    (1.63
    )
    
    
    (0.54
    )
    
    
    (0.73
    )Weighted average number of common shares
outstanding
    
    
    1,227
    
    
    
    1,195
    
    
    
    1,050
 35




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##### Table of Contents



Tarpon Industries, Inc.As of December 31,2004
    
    
    2003
    
    
    2002(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    258
    
    
    $
    22
    
    
    $
    169Working capital
    
    
    (2,084
    )
    
    
    13
    
    
    
    81Total assets
    
    
    21,707
    
    
    
    331
    
    
    
    2692004 note financing obligations
    
    
    2,150
    
    
    
    
    
    
    
    Long-term obligations, net of current portion
    
    
    1,314
    
    
    
    
    
    
    
    Retained earnings (accumulated deficit)
    
    
    (3,411
    )
    
    
    (1,417
    )
    
    
    (766
    )Shareholders equity (1)
    
    
    (1,039
    )
    
    
    13
    
    
    
    81
 Eugene Welding Co.Three Months EndedMarch 31,
    
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (unaudited)(in thousands, except per share data)Statement of
Operations Data:Net revenues
    
    $
    10,549
    
    
    $
    5,382
    
    
    $
    26,442
    
    
    $
    26,644
    
    
    $
    28,386
    
    
    $
    34,976
    
    
    $
    33,644Gross margin
    
    
    1,412
    
    
    
    (145
    )
    
    
    1,479
    
    
    
    1,916
    
    
    
    3,651
    
    
    
    2,603
    
    
    
    4,399Interest expense
    
    
    51
    
    
    
    48
    
    
    
    200
    
    
    
    183
    
    
    
    201
    
    
    
    258
    
    
    
    162Depreciation and
amortization
    
    
    35
    
    
    
    32
    
    
    
    148
    
    
    
    150
    
    
    
    235
    
    
    
    313
    
    
    
    316Net income (loss)
before taxes
    
    
    496
    
    
    
    (718
    )
    
    
    (1,260
    )
    
    
    (4
    )
    
    
    1,188
    
    
    
    (482
    )
    
    
    1,299Net income (loss) (2)
    
    
    380
    
    
    
    (718
    )
    
    
    (1,260
    )
    
    
    (4
    )
    
    
    1,188
    
    
    
    (482
    )
    
    
    1,299
 36




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##### Table of Contents



Eugene Welding Co. As ofMarch 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999(unaudited)(In thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    432
    
    
    $
    270
    
    
    $
    497
    
    
    $
    168
    
    
    $
    13
    
    
    $
    11Working capital
    
    
    539
    
    
    
    763
    
    
    
    2,284
    
    
    
    3,223
    
    
    
    4,850
    
    
    
    5,253Total assets
    
    
    10,845
    
    
    
    10,467
    
    
    
    10,128
    
    
    
    9,767
    
    
    
    11,110
    
    
    
    13,992Long-term obligations, net of
current portion
    
    
    486
    
    
    
    535
    
    
    
    699
    
    
    
    74
    
    
    
    169
    
    
    
    258Retained earnings
    
    
    4,525
    
    
    
    4,145
    
    
    
    5,494
    
    
    
    3,965
    
    
    
    5,815
    
    
    
    6,296Shareholders equity
    
    
    1,593
    
    
    
    1,212
    
    
    
    2,561
    
    
    
    3,966
    
    
    
    5,815
    
    
    
    6,297
 Haines Road Operating LocationYear Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001(in thousands)Statement of Operations Data:Net revenues
    
    $
    15,397
    
    
    $
    11,172
    
    
    $
    13,266
    
    
    $
    12,047Gross margin
    
    
    2,913
    
    
    
    1,498
    
    
    
    2,918
    
    
    
    2,866Interest expense
    
    
    594
    
    
    
    577
    
    
    
    512
    
    
    
    647Depreciation and amortization
    
    
    30
    
    
    
    31
    
    
    
    26
    
    
    
    19Net income (loss) before taxes
    
    
    1,165
    
    
    
    (163
    )
    
    
    1,499
    
    
    
    1,522Net income (loss)
    
    
    763
    
    
    
    (116
    )
    
    
    1,007
    
    
    
    1,016
 Haines Road Operating LocationAs of December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Working capital
    
    
    5,581
    
    
    
    3,676
    
    
    
    2,629
    
    
    
    1,511Total assets
    
    
    13,522
    
    
    
    11,327
    
    
    
    10,414
    
    
    
    10,174Long-term debt, net of current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Location equity before currency translation
    
    
    9,725
    
    
    
    8,961
    
    
    
    9,078
    
    
    
    8,070Location equity
    
    
    12,136
    
    
    
    10,468
    
    
    
    8,704
    
    
    
    7,632
   (1)
    
    See Statements of Shareholders Equity of the Financial Statements included in this report
for an analysis of common share transactions for the period from January 1, 2002 through
December 31, 2004.(2)
    
    Does not include any provision or benefit for federal or state income taxes for EWCO through
December 31, 2003 because it was taxed as an S corporation through December 31, 2003. 37




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read together with the Selected Financial Data and our
financial statements and related notes appearing elsewhere in this report. See also the
Cautionary Statement Regarding Forward-Looking Statements. Overview We were incorporated in January 2002. Tarpon, our parent company, does not generate any
revenues. We completed our first acquisition, EWCO, in April 2004 and our second acquisition,
Steelbank, in May 2004. Our third acquisition, Haines Road was completed in February 2005 except
for the real estate, which we expect to close later in 2005. As a result, the separate financial
information included in this report, regarding our acquired companies, reflects operations of EWCO,
and Haines Road before we acquired, managed and controlled them and might not be useful indicators
of their future results of operation or financial condition. EWCO, Haines Road and Steelbank derive revenues from sales of structural and mechanical steel
tubing and steel storage rack systems. A portion of Steelbanks revenues result from commissions on
sales of structural and mechanical steel tubing, to our distributors and to manufacturers and
retailers in the United States and Canada through our direct sales employees. Our primary expenses
are the costs of steel coil and manufacturing costs, which we expense when the related product is
sold. Our costs also include selling, general and administrative expenses, which we generally
expense as incurred. Steel costs were approximately 66% of EWCOs total cost of sales for 2004 and
approximately 82% of Haines Roads total cost of sales for 2004. Manufacturing costs include
manufacturing overhead, direct labor and outside services. Selling, general and administrative
expenses consist primarily of management, accounting, human resources, customer service and sales
staff salaries, expenses and commissions and travel, advertising, insurance, rent, utilities, legal
and professional fees, staff salaries and other payroll expenses. Summary of Recent Operations On a consolidated basis, we generated revenues of approximately $37,600,000 in 2004 in
comparison with no revenues in 2003. Our operations reflected a net loss before taxes of
approximately $2,065,500 in 2004, in comparison with a net loss before taxes of approximately
$650,400 in 2003. Our business transformed from a company with no revenues seeking target acquisitions to an
enterprise with operating subsidiaries, including the acquisitions of EWCO and Steelbank. Our
consolidated 2004 results were materially impacted by several
expenses associated with our acquired companies and finance activities such as amoritization expense (approximately $38,000),
bad debt write-offs (approximately $377,000), professional services expenses (approximately
$283,000), inventory adjustments (approximately $371,000), severance costs (approximately
$225,000), foreign exchange loss related to our promissory notes issued to sellers (approximately
$192,000) and interest and related costs associated with our 2004 note financing (approximately
$1,227,400) our promissory notes issued to sellers (approximately $69,900) and Steelbank
indebtedness under a factoring receivable arrangement (approximately $165,000). 38




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##### Table of Contents



Also, as a result of the acquisition of EWCO and Steelbank, the finished goods inventories
that we acquired were re-valued by increasing their carrying amounts
by approximately $245,000
pursuant to purchase accounting practices. Therefore, we incurred costs of goods sold at these
higher amounts when these products were sold in 2004, reducing our margins. In addition to price increases, we had an approximately 3% increase in tons of steel shipped
at EWCO and Haines Road in 2004, compared with 2003. On an unaudited pro forma basis, our operations (including those of Haines Road, which we
acquired in February 2005 and excluding those of Steelbank from January 2004 through May
17th 2004) generated approximately $63,202,000 of revenues in 2004 in comparison with
$37,359,000 in 2003. Our operations also reflected income before taxes for 2004 of approximately
$348,000, on an unaudited pro forma basis, in comparison with a net loss before taxes of
approximately $1,377,000 in 2003 (as reflected in the Companys registration statement filed on
Form S-1 dated February 14th, 2005). This reflects an improvement of approximately
$1,725,000. This financial improvement has taken place in an environment of sharply increasing costs for
steel, which represented more than half of our selling price in 2004. In response, we, like our
competitors, raised our prices sharply over the period. Our steel tubing operations benefited from
being able to increase our prices faster than the increase in our steel costs. EWCO also benefited
materially from inventories of lower priced steel (purchased in 2003 at prices substantially lower
than 2004 inventory prices), which contributed substantially to our profitability in the first
quarter of 2004. The year-to-year comparison is made even more favorable because in 2003, price
increases did not keep pace with steel cost increases and Haines Road had higher than normal levels
of high priced steel at the beginning of 2003 that it sold early in the year when prices for its
products were declining, resulting in a substantial loss for the 2003 period. We currently seek to minimize the potential adverse impact of commodity price risks of our
steel inventory by minimizing the amount of steel inventory we carry. We might not be able to
raise our prices, especially more than cost increases, as we expect competitive factors in our
industry to result in more moderate gross profit margins, either slowing, stopping or reversing
price increases. We cannot quantify the impact of these factors on future profitability, but note
that they may have a negative effect on the profitability trends we have shown in 2004. Major
price fluctuations are characteristic of our industry and typically lead to dramatic changes in
results of operations, including losses if price reductions are severe. We believe that maintaining and growing future profitability will depend on increasing our
sales tonnage and reducing our manufacturing costs, together with buying steel as cost effectively
as possible. However, we may not be able to do some or all of these items. 39




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##### Table of Contents



Results of Operations Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 In 2004 and 2003, Tarpons (including EWCO and Steelbank since the date of acquisition, April
2004 for EWCO, and May 2004 for Steelbank) and Haines Roads net revenues and shipments were as
follows: 2004
    
    
    2003
    
    
    Change$
    
    
    $
    
    
    $
    
    
    %(dollars in thousands)EWCO Tubular
    
    $
    14,622
    
    
    
    N/A
    
    
    
    N/AEWCO SpaceRak
    
    $
    17,733
    
    
    
    N/A
    
    
    
    N/ASteelbank
    
    $
    5,267
    
    
    
    N/A
    
    
    
    N/AHaines Road
    
    $
    15,397
    
    
    
    11,172
    
    
    
    4,225
    
    
    
    37.8
    %
 2004
    
    
    2003
    
    
    ChangeTons
    
    
    Tons
    
    
    Tons
    
    
    %(dollars in thousands)EWCO Tubular
    
    
    16,835
    
    
    
    N/A
    
    
    
    N/AEWCO SpaceRak
    
    
    13,393
    
    
    
    N/A
    
    
    
    N/AHaines Road
    
    
    17,544
    
    
    
    16,103
    
    
    
    1,441
    
    
    
    8.9
    %
 The following table reflects Tarpons (including EWCO and Steelbank since the date of
acquisition) and Haines Roads cost of goods sold and the related gross margin percentages for 2004
and 2003: 2004
    
    
    2003
    
    
    Cost Change$
    
    
    GM%
    
    
    $
    
    
    GM%
    
    
    $
    
    
    %(dollars in thousands)EWCO Tubular
    
    $
    12,720
    
    
    
    13.0
    %
    
    
    N/A
    
    
    
    
    
    
    
    N/AEWCO SpaceRak
    
    
    16,706
    
    
    
    5.8
    %
    
    
    N/A
    
    
    
    
    
    
    
    N/ASteelbank
    
    
    4,446
    
    
    
    15.6
    %
    
    
    N/A
    
    
    
    
    
    
    
    N/AHaines Road
    
    
    12,484
    
    
    
    18.9
    %
    
    
    9,674
    
    
    
    13.4
    %
    
    
    2,810
    
    
    
    29.1
    %
 40




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##### Table of Contents



The following table reflects Tarpons (including EWCO and Steelbank since the date of
acquisition) and Haines Roads total selling, general and administrative expenses, including
depreciation, for 2004 and 2003: 2004
    
    
    2003
    
    
    Cost Change$
    
    
    Sales %
    
    
    $
    
    
    Sales %
    
    
    $
    
    
    %(dollars in thousands)Tarpon (unconsolidated)
    
    $
    1,122
    
    
    
    N/A
    
    
    $
    650
    
    
    
    N/A
    
    
    $
    472
    
    
    
    72.6
    %EWCO
    
    
    2,099
    
    
    
    6.4
    %
    
    
    N/A
    
    
    
    
    
    
    
    N/ASteelbank
    
    
    908
    
    
    
    17.2
    %
    
    
    N/A
    
    
    
    
    
    
    
    N/AHaines Road
    
    
    1,154
    
    
    
    7.5
    %
    
    
    948
    
    
    
    8.5
    %
    
    
    206
    
    
    
    21.7
    %
 Tarpon Industries, Inc. Net Revenues The increase in Tarpons net revenues was due to its acquisition of EWCO in April 2004 and its
acquisition of Steelbank in May 2004. EWCO added approximately $32,355,000 in net revenues. EWCO
had the following increases in average revenue per ton: (1) $14, or 3%, for EWCOs steel tubing
products, and (2) $39, or 4%, for EWCOs steel storage rack systems products. The increase in the
average price per ton was primarily due to price increases in 2004 in the industry generally as a
result of increased steel costs. Increases in average revenue per ton for these products
substantially moderated in the third and fourth quarters. The increase in EWCOs net revenues is
also due to the increase in tons of SpaceRak product shipped and we partially offset by the
decrease in tons of tubular products shipped. See Steel for a description of changes in our
average cost per ton of steel. The increase in tons of product shipped in 2004 was primarily due
to increased shipments of EWCOs SpaceRak products, which we believe resulted from more focused
sales efforts. The decrease in tons of EWCO tubular products shipped was primarily due to the
decreased availability of hot rolled steel coil. Steelbank added approximately $5,267,000 in net
revenues after acquisition. Cost of Goods Sold and Gross Margin During the twelve month period ended December 31, 2004, and subsequent to Tarpons
acquisitions of EWCO and Steelbank, Tarpons gross margin percentage improved. Increased margins at
EWCO more than offset the lower Steelbank gross margin. EWCOs increase was primarily due to:  
    the increases in average revenue per ton described above, which more than offset
increased costs of materials primarily due to rising steel prices; SpaceRak, however, did
not increase its prices as fast due to a lag between pricing and shipping, which accounts
for its below average margins for the period.
    a $43 per ton, or 8.9%, decrease in average manufacturing costs for EWCOs SpaceRak
products, due to our fixed manufacturing costs being spread over higher volume and reduced
overtime. That decrease was partially offset by approximately $34 per ton, or 31.8%,
increase in average manufacturing costs for EWCOs steel tubing products, due to our fixed
manufacturing costs being spread over a lower volume.
    the steel inventories on hand at EWCO at the end of 2003 that it had purchased at lower
prices than first quarter replacement costs.
    Scrap steel sales increased approximately $435,000 at EWCO in 2004, compared to 2003,
primarily as a result of an increase in scrap steel prices between those periods.
    as a result of the acquisition of EWCO and Steelbank, the
finished goods inventories that we acquired were re-valued by
increasing their carrying amounts by approximately $246,000 pursuant
to purchase accounting practices. Therefore, we incurred costs of
goods sold at these higher amounts when these products were sold in
2004, reducing our margins. 41




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##### Table of Contents



Total Operating Expenses The increase in Tarpons total operating expense for 2004 over 2003 of approximately
$3,479,000, including depreciation, was primarily attributable to its acquisitions of EWCO in April
2004 and Steelbank in May 2004. In addition $225,000 in
severance expenses, $146,000 increase in
legal, accounting, and consulting expenses as a result of our
consulting arrangement with Bainbridge Advisors, Inc., and $38,000 of
amortization expense, as well as approximately $192,000 in foreign
exchange losses on seller notes payable. The acquisition of EWCO
added approximately $2,099,000 total operating expenses. Major costs included wages and benefits
of approximately $1,061,000, professional fees of $283,000, rent, utilities and office expenses of
$223,000, bad debts of $190,000, outside services of $122,000, and
delivery and auto expenses of $72,000. The acquisition of Steelbank added approximately $908,000 in total operating expenses. Major
costs included wages and benefits of $372,000, rent, utilities and office administrative expenses
of $119,000, bad debts of $187,000, delivery and auto of $112,000, and professional fees of
$38,000. Interest and Other Expenses Tarpons interest expense increased approximately $1,237,000 in 2004, compared to 2003. The
increase was due to interest expense of approximately $128,100 on $2,150,000 of bridge note
financing, amortization of warrants of $651,600, $29,700 related to notes payable of $1,134,300 to
the former shareholders of Steelbank, $40,200 related to the note payable to the former sole
shareholder of EWCO, and $262,700 and $165,000 on EWCO and Steelbank indebtedness, respectively.
2004 interest expense on Steelbank indebtedness related to the Greenfield Commercial Credit, Inc.
factoring arrangement. Tarpons financing costs increased approximately $447,700 in 2004, compared to 2003. The
increase was due to the amortization of prepaid financing fees associated with the bridge note
financing. Income Taxes Tarpon has not recognized a potential tax benefit from its net losses, because of the
uncertainty regarding its ability to realize future tax benefit of its net operating loss
carryforwards. This potential loss carry forward if utilized would be approximately $3.2 Million. EWCO was an S corporation until December 31, 2003. As a result of its change to a C
corporation, it is now subject to income taxes on its taxable income and has no operating loss
carryforwards for taxable losses before January 1, 2004. Haines Road Net Revenues The increase in Haines Roads net revenues was primarily due to approximately $191 or
approximately 20%, increase in average revenue per ton. The increase in the average price per ton
was primarily due to price increases in 2004 in the industry generally as a result of 42




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##### Table of Contents



increased steel costs. Increases in average revenue per ton for these products substantially
moderated in the third quarter. The increase in Haines Roads net revenues is also due to the
increase in tons of product shipped shown in the table above. See Steel for a description of
changes in Haines Roads average cost per ton of steel. The increase in tons of product shipped in
2004 was primarily due to increased shipments of products, which we believe resulted from more
focused sales efforts. Cost of Goods Sold and Gross Margin Haines Roads gross margin percentage increased, primarily due to  
    the increase in average revenue per ton described above, which more than offset
increased costs of materials primarily due to rising steel prices, and
    an approximately $27 per ton, or approximately 14%, decrease in average manufacturing
costs, due to Haines Roads fixed manufacturing costs being spread over higher volume and
reduced overtime. Scrap steel sales increased approximately $130,000 in 2004, compared to 2003, primarily as a
result of an increase in scrap steel prices between those periods. Selling, General and Administrative Expenses The increase in Haines Roads total selling, general and administrative expense, including
depreciation, was primarily attributable to: (a) approximately $72,000 of increased, wages and
benefits expenses, (b) approximately $62,000 of increased foreign exchange loss, (c) approximately
$30,000 of increased travel and entertainment expenses, (d) approximately $18,000 of increased rent
expenses office supplies expenses, (e) approximately $14,000 of license fees, (f) approximately
$12,000 of increased fuel and repair expenses, and (g) an approximate $10,000 increase in insurance
expense, partially offset by an approximate $16,000 reduction in bad debt expense. Selling,
general and administrative expenses decreased as a percentage of net sales primarily due to
increased sales. Interest and Other Expenses Haines Roads interest expense increased approximately $17,000 in 2004, compared to 2003. The
increase was primarily due to increased interest rates in connection with a loan amendment and a
loan renewal fee, partially offset by reduced borrowing. Income Taxes Haines Roads effective tax rates are higher than U.S. rates primarily as a result of higher
Canadian federal income tax rates. 43




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##### Table of Contents



Pro Forma Year Ended December 31, 2004 Net Revenues Our 2004 pro forma net revenues and shipments, as if we had acquired EWCO and Haines Road as
of January 1, 2004, and Steelbank as of May 14, 2004, were as follows: 2004$
    
    
    %(dollars in thousands)EWCO Tubular
    
    $
    20,551
    
    
    
    32.5
    %EWCO SpaceRak
    
    
    23,051
    
    
    
    36.5
    %Haines Road
    
    
    15,397
    
    
    
    24.4
    %Steelbank
    
    
    5,267
    
    
    
    8.3
    %Less Inter-Company
    
    
    (1,064
    )
    
    
    (1.7
    %)Total Pro Forma
    
    $
    63,202
    
    
    
    100.0
    %
 2004Tons
    
    
    %EWCO Tubular
    
    
    24,803
    
    
    
    40.8
    %EWCO SpaceRak
    
    
    18,452
    
    
    
    30.3
    %Haines Road
    
    
    17,544
    
    
    
    28.9
    %Total
    
    
    60,799
    
    
    
    100.0
    %
 Pro forma revenues for 2004 reflect an increase in tons of product shipped at EWCO SpaceRak
and Haines Road and the following increases in average revenue per ton: (1) $14, or 3%, for EWCOs
steel tubing products, (2) $39, or 4%, for EWCOs steel storage rack system products, and (3) $191,
or 20%, for Haines Road. The increase in the average price per ton was primarily due to price
increases in 2004 in the industry generally as a result of increased steel costs. Increases in
average revenue per ton for these products substantially moderated in the third and fourth
quarters. We currently seek to minimize the amount of steel inventory we carry. The increase in
our net revenues is also due to the increase in tons of product shipped. See Steel for a
description of changes in our average cost per ton of steel. The increase in tons of product
shipped in the 2004 period was primarily due to increased shipments of EWCO SpaceRak and Haines
Road products, which we believe resulted from more focused sales efforts. EWCO steel tubular
product tonnage decreased as a result of customers purchasing lower volumes due to increased
product prices. The per ton information provided above includes inter-company amounts, which are
not tracked internally. Cost of Goods Sold and Gross Margin The following table reflects cost of goods sold and the related gross margin percentages for
2004 on a pro forma basis, as if we had acquired EWCO and Haines Road as of January 1, 2004, and
Steelbank as of May 14, 2004: 2004$
    
    
    GM%(dollars in thousands)EWCO Tubular
    
    $
    17,599
    
    
    
    14.4
    %EWCO SpaceRak
    
    
    21,663
    
    
    
    6.0
    %Haines Road
    
    
    12,484
    
    
    
    18.9
    %Steelbank
    
    
    4,446
    
    
    
    15.6
    %Less Inter-Company
    
    
    (974
    )Total
    
    $
    55,218
    
    
    
    12.6
    %
 44




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##### Table of Contents



Our pro forma gross margin percentage for 2004 increased, primarily due to  
    the increases in average revenue per ton described above, which more than offset
increased costs of materials primarily due to rising steel prices, except that SpaceRak did
not increase its prices as fast due to a lag between pricing and shipping, which accounts
for its below average margins for the period,
    an approximately $43, or 8.9% decrease in average manufacturing costs for EWCOs steel
storage rack system products and an approximately $27 per ton, or an approximately 14%,
decrease for Haines Roads products, partially offset by approximately $34, or
approximately 31.8%, increase in average manufacturing costs for EWCOs tubular products,
and
    the steel inventories on hand at EWCO at the end of 2003 that it had purchased at lower
prices than first quarter replacement costs; EWCO currently maintains lower inventory
levels. Selling, General and Administrative Expenses The following table reflects total selling, general and administrative expenses, including
depreciation, for 2004 on a pro forma basis, as if we had acquired EWCO and Haines Road as of
January 1, 2004, and Steelbank as of May 14, 2004. Included
are approximately $424,000 in non-employee stock options. 2004$
    
    
    Sales %(dollars in thousands)Tarpon
    
    $
    1,121
    
    
    
    N/AEWCO
    
    
    3,162
    
    
    
    7.2
    %Haines Road
    
    
    1,154
    
    
    
    7.4
    %Steelbank
    
    
    908
    
    
    
    17.2
    %Consolidating adjustment
    
    
    (213)EWCO
adjustment
    
    
    13Offering
adjustment
    
    
    424Haines Road adjustment
    
    
    75Total
    
    $
    6,644
    
    
    
    10.5
    %
 Interest and Other Expenses Pro forma interest expense for 2004 was approximately $968,000, primarily due to increased
borrowings in connection with the Haines Road acquisition and increased borrowings at EWCO and
Haines Road in 2004. Income Taxes Tarpon and has not recognized a potential tax benefit from its net losses, because of the
uncertainty regarding our ability to realize future tax benefit of our net operating loss
carryforwards. EWCO ceased to be an S corporation effective January 1, 2004. Tarpons acquisition
of Steelbanks stock results in a limitation on its use of Steelbanks net operating loss
carryforwards. 45




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##### Table of Contents



Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003 EWCO Net Revenues In the three months ended March 31, 2004 and 2003, EWCOs net revenues and shipments were as
follows: First Three Months 2004
    
    
    First Three Months 2003
    
    
    Change$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %(unaudited)(dollars in thousands)EWCO Tubular
    
    $
    5,230
    
    
    
    49.6
    %
    
    $
    2,526
    
    
    
    46.9
    %
    
    $
    2,704
    
    
    
    107.0
    %EWCO SpaceRak
    
    
    5,319
    
    
    
    50.4
    %
    
    
    2,856
    
    
    
    53.1
    %
    
    
    2,463
    
    
    
    86.2
    %Total
    
    $
    10,549
    
    
    
    100.0
    %
    
    $
    5,382
    
    
    
    100.0
    %
    
    $
    5,167
    
    
    
    96.0
    %
 First Three Months 2004
    
    
    First Three Months 2003
    
    
    ChangeTons
    
    
    %
    
    
    Tons
    
    
    %
    
    
    Tons
    
    
    %EWCO Tubular
    
    
    7,968
    
    
    
    61.2
    %
    
    
    5,606
    
    
    
    67.6
    %
    
    
    2,362
    
    
    
    42.1
    %EWCO SpaceRak
    
    
    5,059
    
    
    
    38.8
    %
    
    
    2,687
    
    
    
    32.4
    %
    
    
    2,372
    
    
    
    88.3
    %Total
    
    
    13,027
    
    
    
    100.0
    %
    
    
    8,293
    
    
    
    100.0
    %
    
    
    4,734
    
    
    
    57.1
    %
 The increase in EWCOs net revenues was primarily due to an increase of $205, or 45.5%, in the
average revenue per ton for EWCOs steel tubing products, partially offset by a decrease of $12, or
1.1%, in the average revenue per ton for EWCOs steel storage rack systems products. The increase
in the average price per ton for steel tubing products was primarily due to price increases in 2004
in the industry generally as a result of increased steel costs. The increase in our net revenues
is also due to the increase in tons of product shipped shown in the table above. The increase in
tons of product shipped in the 2004 period was primarily due to increased shipments of EWCO
SpaceRak and tubular products, which we believe resulted from more focused sales efforts. However,
our average revenue per ton for EWCOs steel storage rack systems decreased as a result of lag in
timing between increased steel costs and a change in product prices. Cost of Goods Sold and Gross Margin The following table reflects cost of goods sold and the related gross margin percentages for
the three months ended March 31, 2004 and 2003 for EWCO: First Three Months 2004
    
    
    First Three Months 2003
    
    
    Change$
    
    
    GM%
    
    
    $
    
    
    GM%
    
    
    $
    
    
    %(dollars in thousands)EWCO Tubular
    
    $
    4,179
    
    
    
    20.1
    %
    
    $
    2,817
    
    
    
    (11.5
    %)
    
    $
    1,362
    
    
    
    48.3
    %EWCO SpaceRak
    
    
    4,958
    
    
    
    6.8
    %
    
    
    2,709
    
    
    
    5.1
    %
    
    
    2,249
    
    
    
    83.0
    %Total
    
    $
    9,137
    
    
    
    13.4
    %
    
    $
    5,526
    
    
    
    (2.7
    %)
    
    $
    3,611
    
    
    
    65.3
    %
 46




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##### Table of Contents



EWCOs gross margin percentage increased, primarily due to:  
    the increases in average revenue per ton for EWCOs tubular products described above,
which more than offset increased costs of materials primarily due to rising steel prices,
except that SpaceRak did not increase its prices as fast due to a lag between pricing and
shipping, which accounts for its below average margins for the quarter,
    an approximately $144 per ton, or 25.0%, decrease in average manufacturing costs for
EWCOs steel storage rack system products primarily due to EWCOs fixed manufacturing
costs being spread over a higher volume, and
    the steel inventories on hand at EWCO at the end of 2003 that it had purchased at lower
prices than first quarter replacement costs; EWCO currently maintains lower inventory
levels.
    an approximately $5 per ton, or 4.1%, increase in average manufacturing costs for EWCOs
steel tubing products. Selling, General and Administrative Expenses The following table reflects EWCOs total selling, general and administrative expenses,
including depreciation, for the quarters ended March 31, 2004 and 2003: First Quarter 2004
    
    
    First Quarter 2003
    
    
    Cost Change$
    
    
    Sales %
    
    
    $
    
    
    Sales %
    
    
    $
    
    
    %(dollars in thousands)EWCO
    
    
    850
    
    
    
    8.1
    %
    
    
    525
    
    
    
    9.8
    %
    
    
    325
    
    
    
    61.9
    %
 The increase in EWCOs total selling, general and administrative expense, including
depreciation, was primarily attributable to: (a) approximately $199,000 in increased bad debt
expense in the first quarter of 2004, (b) approximately $23,000 in increased professional services
expenses, (c) approximately $46,000 in increased legal expenses, and (d) approximately $20,110 in
increased Michigan single business taxes due to increased profits. Interest and Other Expenses EWCOs interest expense increased approximately $4,000 in the first quarter of 2004, compared
to the first quarter of 2003. The increase was primarily due to approximately $424,000 in
increased borrowings by EWCO. Income Taxes EWCO was an S corporation until December 31, 2003. As a result of its change to a C
corporation, it is now subject to income taxes on its taxable income and has no operating loss
carryforwards for taxable losses before January 1, 2004. Beginning April 1, 2004, with the
acquisition of EWCO, we will file a consolidated federal income tax return. 47




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##### Table of Contents



Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 In 2003 and 2002, EWCOs and Haines Roads net revenues and shipments were as follows: 2003
    
    
    2002
    
    
    Change$
    
    
    $
    
    
    $
    
    
    %(dollars in thousands)EWCO Tubular
    
    $
    13,069
    
    
    $
    10,930
    
    
    $
    2,139
    
    
    
    19.6
    %EWCO SpaceRak
    
    
    13,373
    
    
    
    13,714
    
    
    
    (341
    )
    
    
    (2.5
    %)Haines Road
    
    
    11,172
    
    
    
    13,266
    
    
    
    (2,094
    )
    
    
    (15.8
    %)
 2003
    
    
    2002
    
    
    ChangeTons
    
    
    Tons
    
    
    Tons
    
    
    %EWCO Tubular
    
    
    29,750
    
    
    
    24,106
    
    
    
    5,644
    
    
    
    23.4
    %EWCO SpaceRak
    
    
    13,053
    
    
    
    12,889
    
    
    
    164
    
    
    
    1.3
    %Haines Road
    
    
    16,102
    
    
    
    20,633
    
    
    
    (4,531
    )
    
    
    (22.0
    %)
 The following table reflects EWCOs and Haines Roads cost of goods sold and the related gross
margin percentages for 2003 and 2002: 2003
    
    
    2002
    
    
    Cost Change$
    
    
    GM%
    
    
    $
    
    
    GM%
    
    
    $
    
    
    %(dollars in thousands)EWCO Tubular
    
    $
    12,935
    
    
    
    1.0
    %
    
    $
    10,856
    
    
    
    0.7
    %
    
    $
    2,079
    
    
    
    19.2
    %EWCO SpaceRak
    
    
    12,027
    
    
    
    10.1
    %
    
    
    11,872
    
    
    
    13.4
    %
    
    
    155
    
    
    
    1.3
    %Haines Road
    
    
    9,674
    
    
    
    13.4
    %
    
    
    10,348
    
    
    
    22.0
    %
    
    
    (674
    )
    
    
    (6.5
    %)
 The following table reflects Tarpons, EWCOs and Haines Roads total operating expenses,
including depreciation, for 2003 and 2002: 2003
    
    
    2002
    
    
    Cost Change$
    
    
    Sales %
    
    
    $
    
    
    Sales %
    
    
    $
    
    
    %(dollars in thousands)Tarpon
    
    $
    650
    
    
    
    N/A
    
    
    $
    766
    
    
    
    N/A
    
    
    
    ($116
    )
    
    
    (15.1
    %)EWCO
    
    
    2,546
    
    
    
    9.6
    %
    
    
    1,814
    
    
    
    7.4
    %
    
    
    732
    
    
    
    40.4
    %Haines Road
    
    
    948
    
    
    
    8.5
    %
    
    
    841
    
    
    
    6.3
    %
    
    
    107
    
    
    
    12.7
    %
 48




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##### Table of Contents



Tarpon Industries, Inc. Total Operating Expenses The approximately $116,000 decrease in our total operating expenses was primarily attributable
to approximately $106,000 in decreased consulting expenses and approximately $26,000 in abandoned
projects expenses in 2002 that were not incurred in 2003. Income Taxes Tarpon has not recognized a potential tax benefit from its net losses, because of the
uncertainty regarding its ability to realize future tax benefit of its net operating loss
carryforwards. EWCO Net Revenues The increase in EWCOs net revenues was primarily due to the increase in tons of product
shipped shown in the table above, partially offset by the following decreases in the average
revenue per ton: (1) $14, or 3.1%, for EWCOs steel tubing products, and (2) $39, or 3.7%, for
EWCOs steel storage rack systems products. See Steel for a description of changes in our
average cost per ton of steel. The increase in tons of product shipped at EWCO was primarily due
to increased shipments of EWCO Tubular products, which we believe resulted from aggressive pricing.
The decrease in the average price per ton at EWCO was primarily due to price decreases in the
beginning of 2003 in the industry generally, we believe, as a result of the weaker economy and not
raising our prices as fast as our steel costs increased at the end of the year. Cost of Goods Sold and Gross Margin EWCOs gross margin percentage decreased, primarily due to  
    the decreases in average revenue per ton described above, partially offset by a $17 per
ton, or 13.5%, decrease in average manufacturing costs for EWCOs steel tubing products,
due to reduced overtime.
    a $9 per ton, or 1.7%, increase in average manufacturing costs for steel storage rack
system products, due to a change in product mix toward products requiring greater labor to
produce. Selling, General and Administrative Expenses The increase in EWCOs total selling, general and administrative expense, including
depreciation, was primarily attributable to (a) approximately $439,000 in increased salaries,
payroll taxes and recruiting expenses, due to increased headcount and salary increases, (b)
approximately $245,000 in increased bad debt expenses in 2003, (c) approximately $40,000 in
increased health insurance expenses, (d) approximately $38,000 in increased legal expenses, (e)
approximately $30,000 in increased rent, and (f) approximately $26,000 in increased travel and 49




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##### Table of Contents



related expenses. Selling, general and administrative expenses decreased as a percentage of
net sales primarily due to the effect of increased sales. Interest and Other Expenses EWCOs interest expense increased approximately $17,000 in 2003 compared to 2002. The
increase was primarily due to approximately $373,000 of increased borrowings. Income Taxes EWCO was an S corporation until December 31, 2003, and, therefore, was not subject to federal
income taxes. Haines Road Net Revenues The decrease in Haines Roads net revenues was primarily due to the decrease in tons of
product shipped, partially offset by a $51, or 7.9%, increase in average revenue per ton. See
Steel for a description of changes in Haines Roads average cost per ton of steel. Haines Road
lost a major customer during 2003, with sales to that customer declining from approximately
$3,364,000 in 2002, approximately 25.4% of Haines Roads total sales, to $0 in 2003, but partially
replaced the customer with a new customer purchasing the same product line, with sales to the new
customer of approximately $1,844,000 in 2003, 16.5% of Haines Roads total sales. As a result,
Haines Roads tons shipped and revenues declined in 2003. Cost of Goods Sold and Gross Margin Haines Roads gross margin percentage decreased, primarily due to  
    an increase in costs of materials at Haines Road, primarily due to higher priced
inventories on hand at the beginning of the year, and
    an approximately $20 per ton, or 16.4%, increase in average manufacturing costs for
Haines Road products, due to fixed costs being spread over lower volume. This decrease was partially offset by the increase in average revenue per ton described above. Selling, General and Administrative Expenses The increase in Haines Roads total selling, general and administrative expense, including
depreciation, was primarily attributable to (a) approximately $72,000 in increased foreign exchange
losses, and (b) approximately $11,000 in increased professional fees. Selling, general and
administrative expenses increased as a percentage of net sales primarily due to the effect of
decreased sales. Interest and Other Expenses Haines Roads interest expense and deferred financing expense increased approximately $54,000
in 2003 compared to 2002. The increase was primarily due to increased borrowings and increased
interest rates. 50




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##### Table of Contents



Income Taxes Haines Roads effective tax rates are higher than U.S. rates primarily as a result of higher
Canadian federal income tax rates. Liquidity and Capital Resources Summary The following statements are based on the pro forma financial statements, which reflect the
acquisition of Haines Road and the completion of our initial public offering. As of December 31,
2004, we had pro forma working capital of approximately $2,386,000, including cash and cash
equivalents of approximately $4,315,000, accounts receivable of approximately $8,328,000,
inventories of approximately $8,610,000, and total current liabilities of approximately
$19,931,000, including accounts payable of approximately $8,335,000, and notes payable-bank of
approximately $7,214,000. On August 11, 2004, EWCO secured a credit facility with Standard Federal Bank, N.A., including
a revolving credit facility for up to $7,000,000, and a $1,394,000 term loan. In December 2004 we
amended the line and increased it to $9,000,000. As of March 28, 2005, approximately $1,050,000
was available for borrowing under the revolving credit facility. Steelbank had a full-recourse factoring arrangement with Greenfield Commercial Credit, Inc.
for the extension of up to approximately $1,245,450 of credit, representing approximately
$1,556,813 in face amount of eligible receivables sold and outstanding at any time. As of December
31, 2004, approximately $1,171,931 in face amount of receivables sold and not yet collected, and
approximately $384,881 was available for additional sales under the arrangement in Greenfield
Commercial Credit, Inc.s discretion. On February 17, 2005, Steelbank entered into a Loan Agreement with LaSalle Business Credit, a
division of ABN AMRO Bank N.V., Canada Branch, replacing its full-recourse factoring arrangement.
The credit facility provides for a revolving credit line in the maximum principal amount of
$8,000,000 Canadian dollars, subject to a borrowing base based on eligible inventory and
receivables and subject to reserves, and a term loan in the principal amount of $2,100,000 Canadian
dollars. Steelbank used the borrowings under the credit facility to provide partial funding for
the acquisition of substantially all of the assets and business of Haines Road, to pay transaction
fees and expenses, to refinance Steelbanks full-recourse factoring arrangement and for general
working capital purposes of Steelbank. As of March 18, 2005, approximately $2,056,499 was
available for borrowing under the revolving credit facility. The amounts available under this
credit facility are not included in the pro forma working capital and cash amounts described in the
first paragraph The estimated net proceeds of our initial public offering after deducting the total estimated
expenses of the offering were approximately $12,048,750, of which approximately $1,875,000 is
available for capital expenditures and general working capital. We believe that the net proceeds from our initial public offering, together with cash
generated from our operations and normal borrowings under our lines of credit, will be adequate to
satisfy our We do not have financial resources for additional acquisitions, which will have to be
consummated, if at all, with our common shares. If we are unable to consummate additional 51




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acquisitions with our common shares, we will be required to raise capital through additional
sales of debt or equity securities, which might not be possible, or forego the acquisition. Sources and Uses of Cash Tarpon, our parent company, has incurred losses and negative cash flows in each year since its
inception. It has financed its activities with funds received from sales of its common shares,
notes, warrants and bank loans. As of December 31, 2004, Tarpons current liabilities exceed its
current assets. We believe that the net proceeds from our initial public offering, together with
the cash generated from our operations and normal borrowings under our lines of credit, will be
adequate to satisfy our operating and capital requirements for the next 12 months, except for
additional acquisitions. As of March 28, 2005, approximately $1,050,000 was available for
borrowing under EWCOs revolving credit facility and as of March 18, 2005 approximately $2,056,000
was available for borrowing under Steelbanks revolving credit facility. See Needs for
Liquidity, Financing Arrangements and Proceeds of our initial public offering below for a
discussion of Tarpons needs for liquidity, and sources of liquidity, over the next 12 months. From its inception on January 16, 2002 through October 2003, Tarpon privately placed 1,219,732
of its common shares for gross proceeds of approximately $1,436,000. Its net proceeds, after
deducting the expenses of the offerings, were approximately $1,429,000. As part of the issuance of
these common shares from December 2002 through October 2003, we agreed that upon completion of our
initial public offering, we would issue 70,262 additional common shares to these purchasers,
lowering their effective purchase price to $3.70 a share. These shares were issued in February
2005. In February and March 2004, we privately placed $150,000 of our junior subordinated secured
promissory notes to two of our existing shareholders. In April 2004, we privately placed an
additional $2,000,000 of our junior subordinated promissory secured notes to 27 investors in a 2004
note financing. The notes were issued at their face amount, bore interest at 8% a year, 15% after
January 5, 2005, and were paid in February 2005 at the closing of our initial public offering. We
also granted the purchasers in these offerings warrants to purchase an aggregate of 465,000 common
shares at an exercise price of $5.00 a share. The warrants are exercisable for five years
beginning August 16, 2005. Joseph Gunnar & Co., LLC, one of the underwriters in our initial public
offering, was our placement agent in our April 2004 note financing. Our net proceeds, after
deducting the expenses of these offerings, were approximately $1,871,000. Year Ended December 31, 2004 Tarpon Industries, Inc. Cash Flows From Operating Activities Net cash used in Tarpons (including EWCOs since March 31, 2004 and Steelbanks since May 14,
2004) operations, during 2004 was approximately $3,300,000. Cash was used primarily by (1)
approximately $754,000 of losses before depreciation and amortization, (2) an approximately
$2,220,000 increase in accounts receivable, primarily due to increased sales (3) an approximately
$65,000 increase in refundable income taxes, (4) approximately $2,629,000 increase in inventories
primarily because of rising steel prices, and (5) $305,000 increase in 52




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Tarpons prepaid expenses, primarily due to the full-recourse, accounts receivable factoring
arrangement with Greenfield Credit. These decreases were partially offset by (1) an approximate $2,451,000 increase in accounts
payable and accrued liabilities, primarily due to increased sales and expenses of our initial
public offering, and (2) a $172,000 unrealized loss on foreign currency. Cash Flows From Investing Activities Tarpons (including EWCOs since March 31, 2004 and Steelbanks since May 14, 2004) investing
activities in 2004, used approximately $684,000 in cash. Cash was used for acquisitions of
$566,000 including the deposits on Haines Road and $118,000 for capital and other expenditures. Cash Flows From Financing Activities Tarpons (including EWCOs since March 31, 2004 and Steelbanks since May 14, 2004) financing
activities provided approximately $4,219,000 of cash flows in 2004. Cash was provided primarily by
(1) approximately $2,150,000 in proceeds from notes issued by Tarpon in its 2004 note, and (2) an
approximately $4,516,000 increase in net borrowings by EWCO and Steelbank. These sources were
partially offset by approximately $708,000 used by EWCO to pay down bank financing and
approximately $519,000 financing costs, approximately $1,220,000 of IPO expenditures incurred by
Tarpon. Haines Road Cash Flows From Operating Activities Net cash provided by Haines Roads operations during 2004 was approximately $1,369,000. Cash
was provided primarily by (1) approximately $1,512,000 of income before depreciation and
amortization, (2) an approximate increase in income taxes payable of $553,000 These increases were partially offset by (1) an approximately increase in inventories of
$498,000 primarily because of seasonal demand, and (2) an approximately increase in prepaid
expenses of $204,000 primarily because of an increase in miscellaneous parts. Cash Flows From Investing Activities Haines Roads investing activities in 2004 used approximately $1,249,000 in cash, primarily as
the result of the purchase of miscellaneous equipment. Cash Flows From Financing Activities Haines Roads financing activities used approximately $866,000 of cash flows in 2004. Cash
was used primarily to increase intra-company receivables. 53




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Three Months Ended March 31, 2004 EWCO Cash Flows From Operating Activities Net cash provided by EWCOs operations during the three months ended March 31, 2004 was
approximately $280,000. Cash was provided primarily by (1) approximately $522,000 of income before
depreciation and amortization, (2) an approximately $748,000 decrease in inventories, primarily
because of increased sales and reduced purchasing, (3) an approximately $106,000 decrease in
prepaid expenses, primarily due to a write-off of prepaid expenses, and (4) an approximately
$171,000 increase in accrued and deferred income taxes, as a result of EWCO ceasing to be taxed as
an S corporation. These increases were partially offset by (1) an approximately $1,021,000 increase in
receivables, primarily due to increased sales and slower collection, and (2) an approximately
$246,000 decrease in accounts and distributions payable and accrued liabilities, primarily due to
vendors requiring faster payment. Cash Flows From Investing Activities EWCOs investing activities in the three months ended March 31, 2004 consisted of
approximately $9,000 used for the purchase of equipment. Cash Flows From Financing Activities EWCOs financing activities used approximately $109,000 of cash in the three months ended
March 31, 2004. Approximately $122,000 was used to repay indebtedness, which was partially offset
by an approximately $13,000 increase in net borrowings. Needs for Liquidity We expect that our primary needs for liquidity in 2005 will be (1) to pay our 2004 note
financing and acquisition indebtedness, (2) to pay the portion of the purchase price in the Haines
Road acquisition that is payable at the closing of our initial public offering, to pay the fair
market value of the acquired inventory due within 45 days after the closing of the acquisition and
to pay the portion of the purchase price of the real estate that is due 90 days after the closing
of the acquisition, (3) to make capital expenditures for equipment, (4) for working capital,
including increased accounts receivable and inventories if sales increase, and (5) to sustain our
operations, including funding sales and marketing activities. Financing Arrangements EWCO has a credit facility with Standard Federal Bank, N.A., including a revolving credit
facility for up to $7,000,000, which was increased to $9,000,000 in December 2004, subject to a
borrowing base based on eligible inventory and receivables, originally maturing August 31, 2007,
and a $1,394,000 term loan. The term loan is payable in equal monthly installments of principal
based on a five year amortization ending August 1, 2009, but matures August 31, 2007 if the
revolving credit facility is not renewed. The loans are secured by all of EWCOs personal property
and are guaranteed by Tarpon. The principal amount outstanding 54




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bears interest, payable monthly, at the banks prime rate, plus, until the February 17, 2005
completion of our initial public offering, 0.375%. The loan agreement requires EWCO to maintain a minimum debt service coverage ratio (generally
net income adjusted for depreciation, capital expenditures, and cash distributions and advances,
divided by principal payments of debt) of at least 1.50 to 1.00. EWCOs debt service coverage
ratio as of December 31, 2004 was 2.67 to 1.00. It also requires EWCO to maintain minimum tangible
net worth of $1,400,000 plus 80% of its net income for the preceding fiscal year, starting with net
income for 2005. EWCOs tangible net worth as of December 31, 2004 was $1,604,273. The loan
agreement also generally prohibits dividends and limits EWCOs ability to make capital expenditures
in excess of $300,000 a year before our initial public offering, $1,500,000 during the 12 months
after our initial public offering and $750,000 a year after such 12-month period. We do not expect
the restrictions on EWCOs capital expenditures to have a material impact on our capital
expenditure plans, in part because some of our planned expenditures are for Haines Road. We do not
expect the restrictions on EWCOs dividends to have a material impact on our ability to meet our
cash obligations. EWCO paid a 1% closing fee and must pay a 0.25% unused line of credit fee. EWCO is also
subject to a 1% prepayment fee if the loans are prepaid any time before maturity. As of March 28,
2005, approximately $6,015,000 was outstanding under the revolving credit facility, approximately
$1,278,000 was outstanding under the term loan, and approximately $1,050,000 was available for
borrowing under the revolving credit facility without violating any of the existing debt covenants. Effective May 14, 2004, Steelbank had a full-recourse factoring arrangement with Greenfield
Commercial Credit, Inc. for the extension of up to $1,245,000 of credit, representing approximately
$1,557,000 in face amount of eligible receivables sold and outstanding at any time. The facility
was secured by all of the assets of Steelbank and all obligations of Steelbank under the
arrangements were guaranteed by Tarpon. Steelbank received 80% of the face amount of receivables
that it desired to sell and Greenfield Commercial Credit, Inc. agrees, in its discretion, to buy.
Greenfield Commercial Credit, Inc. could require Steelbank to re-purchase any receivables sold, on
demand, for the unpaid face amount of such receivables. The full-recourse factoring arrangement
was replaced at the closing of our initial public offering. As of December 31, 2004, approximately
$1,172,000 in face amount of receivables were sold and not yet collected and approximately $385,000
was available for additional sales under the arrangement in Greenfield Commercial Credit, Inc.s
discretion. On February 17, 2005, Steelbank entered into a Loan Agreement with LaSalle Business Credit, a
division of ABN AMRO Bank N.V., Canada Branch. The credit facility provides for a revolving credit
line in the maximum principal amount of $8,000,000 Canadian dollars, subject to a borrowing base
based on eligible inventory and receivables and subject to reserves, and a term loan in the
principal amount of $2,100,000 Canadian dollars. Borrowings of Canadian dollars under the revolving credit facility bear interest at a floating
rate equal to the Lenders Canadian prime rate plus an applicable margin of between 0.75% and
1.25%. Borrowings of U.S. dollars under the revolving credit facility bear interest at a floating
rate equal to the Lenders U.S. prime rate. Under certain circumstances, Steelbank has the option
to convert all or any part of its Canadian or United States borrowings to an interest rate equal to
a Libor rate plus an applicable margin of between 2% and 2.75% or a BA rate plus 55




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an applicable margin of between 2% and 2.75%. Interest on the revolving credit facility is
payable monthly in arrears. The full amount borrowed under the revolving credit facility will
mature on February 17, 2008, subject to renewal by the Lender and Steelbank on terms yet to be
determined. Principal on the term loan is payable in sixty equal monthly installments of $35,000 Canadian
dollars beginning on March 31, 2005. The term loan bears interest, which is payable monthly in
arrears, at a floating rate equal to the Lenders Canadian prime rate plus an applicable margin of
between .75% and 1.25%. The entire amount of the term loan facility will mature on February 17,
2010. The obligations under the Loan Agreement are unconditionally guaranteed by Tarpon, and are
secured by a security interest in substantially all of the tangible and intangible assets of
Steelbank and Tarpon, other than Tarpons common shares of Eugene Welding Company. Steelbanks
obligations under the Loan Agreement are also secured by a pledge of the capital stock of Steelbank
pursuant to a share pledge agreement between Tarpon and Lender. The Loan Agreement contains customary covenants that will limit the ability of Steelbank to,
among other things, guarantee additional indebtedness, incur indebtedness, create liens, pay
dividends, make certain types of investments, enter into transactions with affiliates, make capital
expenditures in excess of $500,000 Canadian dollars in any fiscal year, sell assets, merge with
other companies or enter into any transaction outside the ordinary course of business. The Loan Agreement also requires compliance with several financial covenants, including
adjusted net worth of at least $7,555,530 (CAN $9,100,000) or 90% of Steelbanks actual net worth
at February 17, 2005, if higher. For quarters ending June 30, 2005, the minimum adjusted net worth
of the previous quarter will be augmented by 75% of the Net Income for that quarter. In the case
where there is a loss for the quarter, the minimum adjusted net worth will not change from the
previously reported minimum adjusted net worth. The adjusted net worth at December 31, 2004 for
Steelbank (including Haines Road) but before taking into account the changes that came into effect
as a result of the ABN AMRO banking arrangement is $10,880,400. It also requires Steelbank to maintain debt service coverage ratio (generally net income
adjusted for depreciation and amortization, non cash transactions, and capital expenditures divided
by the total of all principal payments of long term debt, capital leases, subordinated debt and all
payments in respect of any distribution), not to exceed 1.25 to 1.00. At December 31, 2004,
Steelbank (including Haines Road) debt service coverage ratio was 0.87 to 1.00. It also requires Steelbank to maintain interest coverage (generally net income adjusted for
interest expense, bank fees and net costs under interest rate contracts, taxes, depreciation and
amortization and non cash items divided by interest expense plus bank fees and net costs under
interest rate contracts), of at least 1.50 to 1.00. At December 31, 2004, before the loan agreement
was in effect, Steelbanks (including Haines Road) pro forma interest coverage was 2.89 to 1.00. Steelbank paid a $83,000 closing fee and must pay a 0.50% unused line of credit fee and
approximately $1,666 monthly administrative fee. As of March 18th, 2005 the revolving
line of credit was unused. Approximately $1,744,000 was outstanding under the Term Loan, and
approximately $2,056,000 was available for borrowing under the revolving credit facility without
violating any of the existing debt covenants. 56




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Steelbank used the borrowings under the credit facility to provide partial funding for the
acquisition of substantially all of the assets and business of Haines Road, to pay transaction fees
and expenses, to refinance Steelbanks full-recourse factoring arrangement and for general working
capital purposes of Steelbank. We expect to seek approximately $3,019,000 in mortgage financing secured by the Haines Road
real estate to help fund the purchase price for that real estate. We currently have no commitment
for the mortgage financing. Proceeds of our initial public offering The estimated net proceeds of our initial public offering, after deducting the estimated cost
of the offering, were approximately $12,048,750, of which $5,690,000 was used for the portion of
the purchase price in the Haines Road acquisition payable at the February 2005 closing of the
acquisition, $163,000 was used to use to pay a portion of the purchase price for the Haines Road
real estate by May 2005, $4,302,000 was used to pay the notes issued in February, March and April
2004 and the EWCO and Steelbank acquisitions, and for the receivable financing arrangement, $18,750
for software licenses, and approximately $1,875,000 is intended to be used for working capital and
capital expenditures. We believe that the net proceeds from our initial public offering, together with cash
generated from our operations and normal borrowings under our lines of credit, will be adequate to
satisfy our operating requirements for at least the next 12 months, except for additional
acquisitions. If we are unable to consummate additional acquisitions with our common shares, we
will be required to raise capital through additional sales of debt or equity securities, which
might not be possible, or forego the acquisition. New Accounting Pronouncements In November 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 151 (SFAS 151), Inventory Costs. SFAS 151 amends the guidance in ARB
No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs and spoilage. This statement requires that these items be
expensed as incurred and not included in overhead. In addition, SFAS 151 requires that allocation
of fixed production overhead to conversion costs should be based on normal capacity of the
production facilities. This Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company is currently evaluating the impact from this standard on
its results of operations and financial position. In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 153 (SFAS 153), Exchanges of Nonmonetary Assets. SFAS 153, amends APB
Opinion No. 29, Accounting for Nonmonetary Transactions, for Non monetary Transactions, for
exchanges of similar productive assets and replaces it with a general exception for exchanges that
do not have commercial substance. This Statement is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company is currently evaluating the
impact from this standard on its results of operations and financial position. In December 2004, the Financial Accounting Standards Board issued Statement No. 123® (SFAS
123®), Share-Based Payment. This statement replaces Statement of 57




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Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation,
and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123® will
require compensation costs related to share-based payment transactions to be recognized in the
financial statements (with limited exceptions). The amount of compensation cost will be measured
based on the grant-date fair value of the equity or liability instruments issued. Compensation cost
will be recognized over the period that an employee provides service in exchange for the award.
This statement is effective as of the beginning of the first interim or annual reporting period of
the first fiscal year that begins on or after June 15, 2005. The Company is currently evaluating
the impact from this standard on its results of operations and financial position. In December 2004, the Financial Accounting Standards Board (FASB) issued two FASB Staff
Positions (FSP) that provide accounting guidance on how companies should account for the effects of
the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004. FSP FAS 109-1,
Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004, states that
the manufacturers deduction provided for under this legislation should be accounted for as a
special deduction instead of a tax rate change. FSP FAS 109-2, Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,
allows a company additional time to evaluate the effect of the legislation on any plan for
reinvestment or repatriation of foreign earnings for purposes of applying Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. These FSPs may affect how a company
accounts for deferred income taxes. These FSPs, effective December 21, 2004, did not have a
material effect on our reported financial statements. Critical Accounting Policies and Use of Estimates Our discussion and analysis of our financial condition and results of operations are based on
the related financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of the financial statements in
accordance with accounting principles generally accepted in the United States of America requires
our management to make estimates that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Our most significant
estimates relate to accounting for business combinations, including intangible assets acquired,
impairment of long-lived assets, allowances for doubtful accounts and valuing options and warrants
granted to non-employees. Actual results could differ from these estimates. We evaluate our
estimates primarily based on historical experience, business knowledge and various assumptions we
believe to be reasonable under the circumstances. These estimates are evaluated by management and
revised as circumstances change. We believe that the following critical accounting policies and
estimates affect our more significant estimates and judgments used in the preparation of our
financial statements. Business Combinations and Intangible Assets We have adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and other
Intangible Assets. SFAS No. 141 requires all business combinations to be accounted for using the
purchase method of accounting and that certain intangible assets 58




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acquired in a business combination must be recognized as assets separate from goodwill. In
arriving at the fair value of assets and liabilities acquired in our acquisitions of EWCO and
Steelbank we have assumed that book values approximate fair values, with the exception of equipment
obtained in the purchase of EWCO, which was written down due to the fair value of the assets
acquired and liabilities assumed exceeding the cost of EWC, and EWCO and Steelbank inventories,
which were written up to resale value. Adjustments to fair values of the assets and liabilities
acquired would generally change the value of goodwill recognized in the acquisition by a
corresponding amount. SFAS No. 142 addresses the recognition and measurement of goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 also addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination, whether acquired
individually or with a group of other assets. This statement provides that intangible assets with
indefinite lives and goodwill will not be amortized but will be tested at least annually for
impairment and whenever events or changes in circumstances indicate that the carrying value of the
asset may not be recovered. If an impairment is indicated, then the asset will be written down to
its fair value, typically based upon its future expected undiscounted cash flows. As of December
31, 2004, our intangible assets consisted of goodwill, customer base and covenants not to compete
relating to the Steelbank acquisition. Goodwill will not be amortized, but will be tested for
impairment, at least annually and whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Long-lived assets include property, intangible assets subject to amortization, and certain
other assets. The carrying values of these assets are periodically reviewed for impairment or
whenever events or changes in circumstances indicate that the carrying amounts may not be
recoverable. We evaluate impairment by comparing the fair value of the intangible assets with
indefinite lives and goodwill with their carrying values. We determine fair value of goodwill
using the sum of the undiscounted cash flows projected to be generated by the acquired business
giving rise to that goodwill. This requires us to make long-term forecasts of our future revenues
and costs related to the assets subject to review. These forecasts require assumptions about
demand for our products and services, future market conditions, and technological developments.
For example, in evaluating the fair value of the goodwill recognized in connection with the
Steelbank acquisition, we have assumed no annual growth in revenues. If actual results differ from our estimates, including if expected future cash flows from the
acquired business significantly decline, and the fair value of goodwill is less than its carrying
value, we would reduce the carrying value of our goodwill to fair value and recognize an impairment
expense in that amount in our income statement in the period in which it is determined that the
carrying amount is not recoverable because it exceeds the fair value of the goodwill.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to result from its use and eventual
disposition. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized for the amount by which the carrying value of the asset exceeds its
fair value. If a readily determinable market price does not exist, fair value is estimated using
undiscounted expected cash flows attributable to the assets. 59




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Bad Debts We maintain a reserve for known and unknown bad debts. We evaluate credit risk and the
adequacy of our reserve by monitoring the age of our accounts receivable and the credit worthiness
of our customers. In addition, we monitor the overall status of the industries where our products
and services are utilized. Typically, this reserve is not subject to significant fluctuations from
period to period. However, if we incur an unusual amount of bad debt, it could alter our exposure
and the related reserve. EWCO recognized an approximately $245,000 increase in bad debt expenses
in 2003 compared to 2002, primarily because of the bankruptcy of a customer. EWCO also recognized
an approximately $199,000 increase in bad debt expenses in the first quarter of 2004 compared to
the first quarter of 2003, and recognized an approximately $94,000 decrease in bad debt expenses in
the last three quarters of 2004 compared to the last three quarters of 2003, primarily because of
increased aging of some receivables and information EWCO identified during the applicable quarter
indicating that the customers might not be able to pay, including the bankruptcy of one customer in
the first quarter of 2004. Grants of Options and Warrants We have chosen to account for stock-based compensation of employees using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, compensation costs for stock options granted
to employees are measured as the excess, if any, of the market price of our stock at the date of
the grant over the amount an employee must pay to acquire the stock. We must account for stock
options and warrants granted to non-employees using the fair value method. In addition, the
Financial Accounting Standards Board has issued new rules requiring stock-based compensation of
employees to be accounted for using the fair value method. We use the Black-Scholes valuation
model for determining the fair value of our options and warrants. That model requires us to make
assumptions regarding the expected life of the security, the expected volatility of our stock price
during the period, the risk free interest rate and the dividend yield. Varying these assumptions
can have a significant impact on our option and warrant valuations and related expenses. Contractual Obligations The following information is provided as of December 31, 2004 with respect to our known
contractual obligations specified in the following table, aggregated by type of contractual
obligation: Payments due by periodLess
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1-3
    
    
    3-5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years(dollars in thousands)Long-term debt obligations*
    
    $
    1,711
    
    
    $
    354
    
    
    $
    797
    
    
    $
    560
    
    
    $
    Capital lease obligations
    
    
    8
    
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    714
    
    
    
    394
    
    
    
    302
    
    
    
    18
    
    
    
    Purchase obligations
    
    
    1,956
    
    
    
    1,956
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 60




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*
    
    Long-term debt obligations and related interest expenses are expected to increase in connection
with our acquisition of Haines Road. In addition, the Company is required to pay interest on its
long-term debt obligations shown in the table above while they are outstanding (assuming the debt
remains outstanding) of $124,000 within one year, $133,000 between one and three years, $30,000
between three and five years, and $0 due in more than five years. Purchase obligations consist primarily of purchase orders executed for raw material inventories.
We have entered into a credit facility replacing Steelbanks full-recourse factoring arrangement
and intend to obtain additional financing. See Liquidity and Capital Resources. In addition, we
intend to combine the Steelbank offices and warehouse with the Haines Road facility, and either
terminate or sublease the existing Steelbank facility. See Business  Our Business Strategy. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to risks associated with changes in foreign currency rates, interest rates and
commodity prices. We have not used derivative financial instruments for any purpose during the
periods shown. Our Canadian operations, Steelbank and Haines Road, are accounted for in Canadian dollars,
converted to the U.S. dollar equivalent based on published exchange rates for the period reported
and are, therefore, subject to risk of exchange rate fluctuations. We are exposed to interest rate risk under our credit facilities because of the variable
interest rates charged on those facilities. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources. We are subject to commodity price risk, primarily with respect to purchases of steel.
Purchased steel represents the most significant portion of EWCOs and Haines Roads cost of goods
sold. As a result, fluctuations in the cost of purchased steel, which can be volatile and cyclical
in nature, have a significant impact on our margins both positively and negatively. Our steel
costs have risen significantly since 2003. We have generally been successful in passing these
higher steel costs on to our customers because our competitors increased their prices too, but we
might not be able to continue to do so in the future. We currently seek to minimize the potential
adverse impact of commodity price risks of our steel inventory by minimizing the amount of steel
inventory we carry. However, opportunities to purchase larger quantities at below market value are
considered and reviewed against current market conditions. We try to coordinate our steel
purchases with our sales and production forecast, generally resulting in a one to two month supply
of steel. The tables below provide information about Tarpons (consolidated) financial instruments that
are sensitive to changes in interest rates, foreign currency exchange rates, or both, consisting of
debt obligations, including Canadian dollar-denominated debt obligations. The tables provide
information by functional currency and presents such information in U.S. dollar equivalents. For
these financial instruments, the tables present principal cash flows and related weighted average
interest rates by expected maturity dates. Weighted average variable rates are based on current
rates for the applicable period. Weighted average fixed rates are based on the contract rates.
The information is presented in U.S. dollar equivalents, which is our 61




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reporting currency. The actual cash flows of the instruments are denominated in U.S. dollars (U.S.$) and Canadian dollars
(Cdn.$), as indicated in parenthesis. December 31, 2004
Expected Maturity Dates2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(U.S.$ equivalent in thousands)Short-term Debt:Variable Rate (U.S. $)
    
    $
    6,711
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,711
    
    
    $
    6,711Average interest rate
    
    
    5.0
    %
        
    
    
    
     
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    %Fixed Rate (U.S. $)
    
    $
    
    
    
    $
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3
    
    
    $
    3Average interest rate
    
    
    0
    %
    
    
    0
    %
        
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    %Long-term Debt:Variable Rate (U.S. $)
    
    $
    
    
    
    $
    293
    
    
    $
    290
    
    
    $
    287
    
    
    $
    281
    
    
    $
    232
    
    
    $
    1,383
    
    
    $
    1,383Average interest rate
    
    
    
    
    
    
    5.5
    %
    
    
    5.8
    %
    
    
    5.8
    %
    
    
    8.0
    %
    
    
    8.0
    %
    
    
    6.5
    %Fixed Rate (U.S. $)
    
    $
    
    
    
    $
    112
    
    
    $
    112
    
    
    $
    112
    
    
    
    
    
    
    
    
    
    
    $
    336
    
    
    $
    336Average interest rate
    
    
    
    
    
    
    8
    %
    
    
    8
    %
    
    
    8
    %
    
    
    
    
    
    
    
    
    
    
    8
    %
 As of December 31, 2003,
Tarpon Industries, Inc. had no debt. The tables below provide information about the Companys pro forma steel inventory that
are sensitive to changes in commodity prices, specifically steel prices. The tables present the
carrying amount and fair value as of the indicated date. December 31, 2004
    
    
    December 31, 2003Carrying Amount
    
    
    Fair Value
    
    
    Carrying Amount
    
    
    Fair Value(U.S.$ equivalent in thousands)Steel Inventories
    
    $
    5,110,434
    
    
    $
    5,110,434
    
    
    $
    3,387,699
    
    
    $
    3,387,699
 62




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TARPON INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS PageTarpon Industries, Inc.Report of Independent Registered Public Accounting Firm
    
    
    63Balance Sheets  December 31, 2004 and 2003
    
    
    65Statements of Operations  For the Years Ended December 31, 2004, 2003 and 2002
    
    
    66Statements of Shareholders Equity  For the Years Ended December 31, 2004, 2003 and 2002
    
    
    67Statements of Cash Flows  For the Years Ended December 31, 2004, 2003 and 2002
    
    
    68Notes to Financial Statements
    
    
    70Quarterly Information
    
    
    86Eugene Welding Co.Report of Independent Registered Public Accounting Firm
    
    
    87Balance Sheets  March 31, 2004 and December 31, 2003 and 2002
    
    
    88Statements of Operations  For the Three Months Ended March 31, 2004 and For the Years Ended December 31, 2003, 2002, and 2001
    
    
    89Statements of Shareholders Equity  For the Three Months Ended March 31, 2004 and For the Years Ended December 31, 2003, 2002, and 2001
    
    
    90Statements of Cash Flows  For the Three Months Ended March 31, 2004 and For the Years Ended December 31, 2003, 2002, and 2001
    
    
    91Notes to Financial Statements
    
    
    92Haines RoadReport of Independent Registered Public Accounting Firm
    
    
    101Balance Sheets  December 31, 2004 and 2003
    
    
    102Statements of Operations and Location Equity  For the Years Ended December 31, 2004, 2003 and 2002
    
    
    103Statements of Cash Flows  For the Years Ended December 31, 2004, 2003 and 2002
    
    
    104Notes to Financial Statements
    
    
    105Pro Forma Combined Financial Statements (unaudited)Introduction
    
    
    117Pro Forma Consolidated Balance Sheet  December 31, 2004
    
    
    119Pro Forma Consolidated Statements of Operations  For the Year Ended December 31, 2004
    
    
    120Notes to Pro Forma Consolidated Financial Statements
    
    
    121
 63




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of
Tarpon Industries, Inc. We have audited the accompanying consolidated balance sheets of Tarpon Industries, Inc. (a
Michigan corporation) and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of operations, shareholders equity (deficit), and cash flows for each of
the three years in the period ended December 31, 2004. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform an audit of its
internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Tarpon Industries, Inc. and subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. Schedule II has been subjected to auditing procedures
applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly
stated, when considered in relation to the basic consolidated financial statements taken as a
whole. /s/ GRANT THORNTON LLP Southfield, Michigan
April 1, 2005 64




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.) 
 CONSOLIDATED BALANCE SHEETS
 December 31,2004
    
    
    2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    257,786
    
    
    $
    22,454Accounts receivable (less allowance for doubtful accounts of $66,492 and $0, respectively
    
    
    8,327,708
    
    
    
    Inventories
    
    
    7,604,384
    
    
    
    Prepaid expenses
    
    
    569,040
    
    
    
    611Prepaid initial public offering expenses
    
    
    2,076,468
    
    
    
    Deposits
    
    
    265,116
    
    
    
    74,441Income tax receivable
    
    
    52,552
    
    
    
    Capitalized acquisition costs
    
    
    131,428
    
    
    
    233,906Total current assets
    
    
    19,284,482
    
    
    
    331,412Property, plant and equipment-net
    
    
    635,051
    
    
    
    Deferred financing costs
    
    
    71,812
    
    
    
    Goodwill
    
    
    1,279,810
    
    
    
    Intangible assets, net of amortization
    
    
    436,638
    
    
    
    TOTAL ASSETS
    
    $
    21,707,793
    
    
    $
    331,412LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current LiabilitiesShort term debt
    
    
    11,467,706
    
    
    
    Accounts payable  trade
    
    
    8,345,395
    
    
    
    281,977Advances from related parties and wages payable
    
    
    
    
    
    
    36,932Accrued expenses
    
    
    781,222
    
    
    
    Success fees
    
    
    233,333
    
    
    
    Income taxes payable
    
    
    135,712
    
    
    
    Current maturities on long-term debt
    
    
    405,107
    
    
    
    Total current liabilities
    
    $
    21,368,475
    
    
    $
    318,909Long-term debt, less current maturities
    
    
    1,314,218
    
    
    
    Other long-term liabilities
    
    
    64,286
    
    
    
    Shareholders Equity (Deficit)Common shares; no par value, authorized, 10,000,000 shares at
December 31, 2004, and 2003; issued and outstanding, 1,229,732
shares at December 31, 2004, and 1,219,732 shares at December 31, 2003
    
    
    
    
    
    
    Additional paid-in capital
    
    
    2,130,952
    
    
    
    1,429,369Accumulated deficit
    
    
    (3,411,380
    )
    
    
    (1,416,866
    )Foreign currency translation
    
    
    241,242
    
    
    
    Total shareholders equity (deficit)
    
    
    (1,039,186
    )
    
    
    12,503TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
    
    $
    21,707,793
    
    
    $
    331,412
 The accompanying notes are an integral part of these financial statements 65




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TARPON INDUSTRIES, INC.
AND SUBSIDIARIES (Formerly known as
Wall St. Acquisitions, Inc.)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2004
    
    
    2003
    
    
    2002REVENUESSales, net of customer discounts
    
    $
    37,621,629
    
    
    $
    
    
    
    $
    COST OF GOODS SOLDMaterials
    
    
    25,565,410
    
    
    
    
    
    
    
    Direct labor
    
    
    2,121,052
    
    
    
    
    
    
    
    Manufacturing overhead
    
    
    6,185,648
    
    
    
    
    
    
    
    Total cost of goods sold
    
    
    33,872,110
    
    
    
    
    
    
    
    Gross profit
    
    
    3,749,519
    
    
    
    
    
    
    
    OPERATING EXPENSESSelling, general and administrative
expenses
    
    
    3,976,435
    
    
    
    650,386
    
    
    
    766,480Depreciation and amortization
    
    
    140,989
    
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    11,392
    
    
    
    
    
    
    
    Total operating expenses
    
    
    4,128,816
    
    
    
    650,386
    
    
    
    766,480OPERATING LOSS
    
    
    (379,297
    )
    
    
    (650,386
    )
    
    
    (766,480
    )OTHER (INCOME) EXPENSEMiscellaneous expense
    
    
    8,009
    
    
    
    
    
    
    
    Interest expense
    
    
    1,237,020
    
    
    
    
    
    
    
    Financing costs
    
    
    447,681
    
    
    
    
    
    
    
    Foreign exchange
    
    
    (6,507
    )
    
    
    
    
    
    
    Total other (income) expense
    
    
    1,686,203
    
    
    
    
    
    
    
    LOSS BEFORE INCOME TAXES
    
    
    (2,065,500
    )
    
    
    (650,386
    )
    
    
    (766,480
    )PROVISION FOR INCOME TAXES
    
    
    (70,986
    )
    
    
    
    
    
    
    NET LOSS
    
    $
    (1,994,514
    )
    
    $
    (650,386
    )
    
    $
    (766,480
    )NET LOSS PER COMMON SHARE BASIC AND DILUTED
    
    $
    (1.63
    )
    
    $
    (0.54
    )
    
    $
    (0.73
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING
    
    
    1,227,300
    
    
    
    1,194,998
    
    
    
    1,050,415
 The accompanying notes are an integral part of these financial statements 66




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.) 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
 TotalNumber of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Foreign
    
    
    ShareholdersCommon
    
    
    Common
    
    
    Paid in
    
    
    Accumulated
    
    
    Currency
    
    
    Equityshares
    
    
    Shares
    
    
    Capital
    
    
    Deficit
    
    
    Translation
    
    
    (Deficit)Balance at January
16, 2002
(inception)
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Issuance of stock,
less issuance costs
of $2,930
    
    
    1,188,760
    
    
    
    
    
    
    
    1,247,864
    
    
    
    
    
    
    
    
    
    
    
    1,247,864Stock subscription
receivable
    
    
    
    
    
    
    
    
    
    
    (400,000
    )
    
    
    
    
    
    
    
    
    
    
    (400,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (766,480
    )
    
    
    
    
    
    
    (766,480
    )Balance at December
31, 2002
    
    
    1,188,760
    
    
    
    
    
    
    
    847,864
    
    
    
    (766,480
    )
    
    
    
    
    
    
    81,384Collection of stock
subscription
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    400,000Issuance of stock,
less issuance costs
of $3,495
    
    
    30,972
    
    
    
    
    
    
    
    181,505
    
    
    
    
    
    
    
    
    
    
    
    181,505Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (650,386
    )
    
    
    
    
    
    
    (650,386
    )Balance at December
31, 2003
    
    
    1,219,732
    
    
    
    
    
    
    
    1,429,369
    
    
    
    (1,416,866
    )
    
    
    
    
    
    
    12,503Stock issued for
consulting services
    
    
    10,000
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Additional paid-in
capital-warrants
    
    
    
    
    
    
    
    
    
    
    651,583
    
    
    
    
    
    
    
    
    
    
    
    651,583Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,994,514
    )
    
    
    
    
    
    
    (1,994,514
    )Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241,242
    
    
    
    241,242Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,753,272
    )Balance at December
31, 2004
    
    
    1,229,732
    
    
    $
    
    
    
    $
    2,130,952
    
    
    $
    (3,411,380
    )
    
    $
    241,242
    
    
    $
    (1,039,186
    )
 The accompanying notes are an integral part of these financial statements 67




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.) 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Year Ended December 31,2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,994,514
    )
    
    $
    (650,386
    )
    
    $
    (766,480
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    1,240,016
    
    
    
    
    
    
    
    Unrealized foreign currency loss
    
    
    172,334
    
    
    
    
    
    
    
    Other
    
    
    51,265
    
    
    
    
    
    
    
    Changes in assets and liabilities:Accounts receivable (increase)
    
    
    (2,220,173
    )
    
    
    
    
    
    
    Refundable federal income taxes (increase)
    
    
    (64,981
    )
    
    
    
    
    
    
    Inventory (increase)
    
    
    (2,629,290
    )
    
    
    
    
    
    
    Prepaid expenses (increase) decrease
    
    
    (304,891
    )
    
    
    54,345
    
    
    
    (54,956
    )Accounts payable and accrued expenses increase
    
    
    2,450,664
    
    
    
    131,220
    
    
    
    187,690Cash used in operating activities
    
    
    (3,299,570
    )
    
    
    (464,821
    )
    
    
    (633,746
    )CASH FLOW FEOM INVESTING ACTIVITIESAcquisitions, net of cash received
    
    
    (565,510
    )
    
    
    (263,341
    )
    
    
    (45,007
    )Capital and other expenditures
    
    
    (118,728
    )
    
    
    
    
    
    
    Cash used in investing activities
    
    
    (684,238
    )
    
    
    (263,341
    )
    
    
    (45,007
    )CASH FLOW FROM FINANCING ACTIVITIESProceeds from issuance of common shares (net of issuance costs
of $0 in 2004, $3,495 in 2003 and $2,930 in 2002)
    
    
    
    
    
    
    581,505
    
    
    
    847,864Initial public offering expenditures
    
    
    (1,220,459
    )
    
    
    
    
    
    
    Financing costs
    
    
    (519,494
    )Borrowing on bank loan
    
    
    5,132,249
    
    
    
    
    
    
    
    Repayment of bank loan
    
    
    (2,968,299
    )
    
    
    
    
    
    
    Proceeds from 2004 note financing
    
    
    2,150,000
    
    
    
    
    
    
    
    Proceeds from issuance of long-term debt
    
    
    1,394,000
    
    
    
    
    
    
    
    Repayment of long-term obligations
    
    
    (708,968
    )
    
    
    
    
    
    
    Proceeds from issuance of short-term obligations
    
    
    1,171,931
    
    
    
    
    
    
    
    Repayment of short-term obligations
    
    
    (211,820
    )
    
    
    
    
    
    
    Cash provided by financing activities
    
    
    4,219,140
    
    
    
    581,505
    
    
    
    847,864INCREASE (DECREASE) IN CASH AND
CASH EQUIVILENTS
    
    
    235,332
    
    
    
    (146,657
    )
    
    
    169,111CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    22,454
    
    
    
    169,111
    
    
    
    CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    257,786
    
    
    $
    22,454
    
    
    $
    169,111
 The accompanying notes are an integral part of these financial statements 68




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.) Supplemental Disclosure of Cash Flow Information: 2004
    
    
    2003
    
    
    2002Cash paid during the period for interest
    
    $
    380,563
    
    
    $
    
    
    
    $
    Non-cash transactions:Success fee obligation for acquisitions
    
    $
    400,000
    
    
    $
    
    
    
    $
    Obligations incurred in Steelbank acquisition
    
    $
    1,312,480
    
    
    $
    
    
    
    $
    Stock issued for consulting services
    
    $
    50,000
    
    
    $
    
    
    
    $
    Issuance of stock warrants
    
    $
    651,583
    
    
    $
    
    
    
    $
    Stock subscription receivable
    
    $
    
    
    
    $
    
    
    
    $
    400,000
 The accompanying notes are an integral part of these financial statements 69




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NOTES TO FINANCIAL STATEMENTS  1.
    Summary of Significant Accounting Policies A summary of the significant accounting policies in the preparation of the accompanying
financial statements follows. Company and Industry Tarpon Industries, Inc. (formerly known as Wall St. Acquisitions, Inc.) (the Company) was
incorporated in Michigan on January 16, 2002. The Company completed two acquisitions in 2004,
Eugene Welding Co., or EWCO, acquired in April 2004, and Steelbank, Inc., or Steelbank,
acquired in May 2004. EWCO manufactures structural steel tubing and steel storage rack systems at
two manufacturing facilities in Michigan, north of Detroit. Steelbank acts as a distributor and
sales representative for the sale of structural and mechanical steel tubing. Steelbank is
currently located near Toronto, Ontario, Canada. We also signed an agreement in July 2004 to
acquire the assets of the Haines Road facility of Bolton Steel Tube Co., Ltd., or Haines Road.
We intend to seek other acquisitions in the steel tubing and related industries, although we
currently have no agreement for any other such acquisition. We changed our name from Wall St. Acquisitions, Inc. to Tarpon Industries, Inc. in March 2004. Consolidation The consolidated financial statements as of December 31, 2004 and for the year ended December
31, 2004 include the accounts of the Company and three wholly-owned subsidiaries, EWCO, Steelbank
and BST Acquisition Ltd. from their date of acquisition, April 2, 2004 for EWCO and May 14, 2004
for Steelbank, or formation, for BST Acquisition Ltd. All significant inter-company transactions
and balances have been eliminated, and the assets of the acquired subsidiaries have been adjusted
to fair values as of the date of acquisition and goodwill has been recognized for the difference
between the purchase price and fair value of the assets acquired for the acquired subsidiaries. We
consider the Company to operate in a single segment. Cash and Cash Equivalents All highly liquid debt instruments purchased with a maturity of three months or less are
considered to be cash equivalents. Accounts Receivable and Concentration of Credit Risk Periodically throughout each year, the Company maintained a balance in one bank account in
excess of the federally insured limit of $100,000. Accounts receivable are due within 30 to 60 days and are stated at amounts due from customers
net of an allowance for doubtful accounts. Accounts that are outstanding longer than the
contractual terms are considered past due. The Company determines its allowance by considering a
number of factors, including the length of time an account is past due, the Companys previous loss
history, the customers current ability to pay its obligation and the condition of the general
economy and the industry as a whole. Accounts receivable are written off when they become
uncollectible and payments subsequently received on such receivables are credited to the allowance
for doubtful accounts. 70




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) The Company had one major customer in 2004 that accounted for 22% of net sales in that period
and approximately 44% of the accounts receivable at December 31, 2004. The Company had one major
supplier in 2004 that accounted for approximately 20% of net purchases in that period. Revenue Recognition For sales of products and scrap, revenue is recognized at the time the product is shipped to
customers. Scrap sales are recognized as a reduction in cost of goods sold. Inventories Inventories are valued at the lower of cost and market value, with cost being determined on
the average cost method. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation and amortization is computed
for financial statement purposes using the straight-line method over the following estimated useful
lives as follows: Machinery and equipment
    
    4 to 6 yearsLeasehold improvements
    
    life of leaseComputer equipment
    
    2 to 3.5 yearsComputer software
    
    2 yearsTransportation equipment
    
    2.5 yearsFurniture and fixtures
    
    6 years
 Expenditures for repairs and maintenance are charged to operations and major betterments are
capitalized. Income Taxes Deferred income taxes are provided for temporary differences between financial statement
income and tax return income under the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, which requires deferred income taxes to be computed on the
asset and liability method and deferred tax assets are recognized only when realization is
probable. Such deferred income tax asset and liability computations are based on enacted tax laws
and rates applicable to periods in which the differences are expected to affect taxable income.
The principal deferred tax asset arises from net operating loss carry forwards. Stock Options We account for stock-based compensation of employees using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, compensation costs for stock options granted to employees and
directors are measured as the excess, if any, of the market price of our stock at the date of grant
over the amount an employee or director must pay to acquire the stock. No compensation expense has
been charged against income for stock options granted to employees or directors. Stock-based
compensation of consultants and 71




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) advisors is determined based on the fair value of the options or warrants on the grant date
pursuant to the methodology of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, estimated using the Black-Scholes model. The resulting amount is
recognized as compensation expense and an increase in additional paid-in capital over the vesting
period of the options or warrants. As of December 31, 2004, the Company had committed to grant of
options to purchase 346,785 shares effective on the date of the initial public offering. Goodwill and Intangible Assets We have adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and other
Intangible Assets. SFAS No. 141 requires all business combinations to be accounted for using the
purchase method of accounting and that certain intangible assets acquired in a business combination
must be recognized as assets separate from goodwill. SFAS No. 142 provides that intangible assets
with indefinite lives and goodwill will not be amortized but will be tested at least annually for
impairment and whenever events or changes in circumstances indicate that the carrying value of the
asset may not be recovered. If the asset is impaired, it will be written down to its fair value. The Company reviews goodwill for impairment annually or more frequently if changes in
circumstances or the occurrence of events suggest the remaining value is not recoverable. The
assessment estimates for impairment of goodwill requires the company to make several estimates
about fair value, many of which are based upon projected future cash flows. Based on our analysis,
goodwill relating to the Steelbank acquisition were not impaired as of December 31, 2004. Foreign Currency Translation and Currency Risk Assets and liabilities have been translated at exchange rates in effect at the balance sheet
date. Income and expenses are translated at average exchange rates during the period. Exchange
gains or losses resulting from translation are reflected in other comprehensive income. Steelbank does not enter into currency futures or forward contracts to manage its exposure to
foreign currency fluctuations. At December 31, 2004, Steelbanks receivables include U.S.
$72,479 and payables include U.S. $866,329. Earnings Per Share Basic earnings per share is computed by dividing earnings on common shares by the weighted
average number of common shares outstanding during each year. Use of Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. 72




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) New Accounting Pronouncements In November 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 151 (SFAS 151), Inventory Costs. SFAS 151 amends the guidance in ARB
No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs and spoilage. This statement requires that these items be
expensed as incurred and not included in overhead. In addition, SFAS 151 requires that allocation
of fixed production overhead to conversion costs should be based on normal capacity of the
production facilities. This Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company is currently evaluating the impact from this standard on
its results of operations and financial position. In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 153 (SFAS 153), Exchanges of Nonmonetary Assets. SFAS 153, amends APB
Opinion No. 29, Accounting for Non-monetary Transactions. This statement eliminates the exception
to fair value in Opinion No. 29, Accounting for Non monetary Transactions. This statement
eliminates the exception to fair value in Opinion 29 for exchanges of similar productive assets and
replaces it with a general exception for exchanges that do not have commercial substance. This
Statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. The Company is currently evaluating the impact from this standard on its results of
operations and financial position. In
December 2004, the Financial Accounting Standards Board issued
Statement No. 123(R) (SFAS
123(R)), Share-Based Payment. This statement replaces Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS 123(R) will require compensation
costs related to share-based payment transactions to be recognized in the financial statements
(with limited exceptions). The amount of compensation cost will be measured based on the grant-date
fair value of the equity or liability instruments issued. Compensation cost will be recognized over
the period that an employee provides service in exchange for the award. This statement is effective
as of the beginning of the first interim or annual reporting period of the first fiscal year that
begins on or after June 15, 2005. The Company is currently evaluating the impact from this standard
on its results of operations and financial position. In December 2004, the Financial Accounting Standards Board (FASB) issued two FASB Staff
Positions (FSP) that provide accounting guidance on how companies should account for the effects of
the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004. FSP FAS 109-1,
Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004, states that
the manufacturers deduction provided for under this legislation should be accounted for as a
special deduction instead of a tax rate change. FSP FAS 109-2, Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,
allows a company additional time to evaluate the effect of the legislation on any plan for
reinvestment or repatriation of foreign earnings for purposes of applying Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. These FSPs may affect how a company
accounts for deferred income taxes. These FSPs are effective December 21, 2004, did not have
a material effect on our reported financial statements. 73




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued)  2.
    Acquisitions EWCO In April 2004, the Company completed the acquisition of 100% of the stock of Eugene Welding
Co., which manufactures and sells structural and mechanical steel tubing and steel storage rack
systems at two manufacturing facilities in Michigan north of Detroit. The aggregate purchase price
for EWCO was $699,490. The Company acquired EWCO for $415,450 in cash paid to its sole shareholder
for all of the then outstanding EWCO shares. We also paid our consultant a $200,000 success fee in
connection with the acquisition and incurred approximately $84,040 in expenses related to the
acquisition, which we have added to the cost of the acquisition. In April 2004 and in connection with our acquisition of EWCO, we entered into an employment
agreement with EWCOs then President and Chief Executive Officer. In August 2004, we entered into
a Termination Agreement with him, pursuant to which he resigned from all of his positions with us,
agreed to render consulting services to us for one year, agreed to a release of claims, agreed to
keep our information confidential and agreed not to compete with us for a period of two years
following the termination of his consultation. His compensation under the agreement includes (1)
payment of $100,000 a year for two years, (2) payment for his current health insurance coverage for
18 months, and (3) payment of his country club dues for 2004 and 2005, up to $5,000 a year, and (4)
reimbursement of his attorney fees incurred in connection with the negotiation of legal matters up
to $9,850 and (5) payment of the outstanding principal and interest on the loan in connection with
the 2003 GMC Sierra pick-up truck currently used by him, two years of insurance and will transfer
to him title to such vehicle. Steelbank In May 2004, the Company completed the acquisition of 100% of the stock of Steelbank, Inc.,
which acts as a distributor and sales representative for the sale of structural and mechanical
steel tubing and is based in a suburb of Toronto, Ontario, Canada. The acquisition complemented
the Companys acquisition of EWCO by providing a sales organization for EWCOs products. Because
much of Steelbanks value to the Company is the value of its sales organization and not the value
of its assets, a majority of the purchase price has been allocated to goodwill. The aggregate
purchase price for Steelbank was $1,656,563. The Company acquired Steelbank by paying
approximately $54,263 (Cdn.$75,000) in cash , issuing a promissory note in the principal amount of
approximately $574,300 (Cdn.$800,000), and by issuing additional promissory notes in the aggregate
principal amount of approximately $ 290,750 (Cdn.$405,000). We also paid Cdn.$62,500 of
the holders legal and other expenses at maturity), agreeing to issue a number of our common shares
equal to approximately $303,180 divided by the $5.00 public offering price of our shares in our
initial public offering (recorded in notes payable  other). Additionally, we paid our consultant a
$200,000 success fee in connection with the acquisition and incurred approximately $268,018 in
expenses related to the acquisition, which we have added to the cost of the acquisition. Canadian
dollars are translated into U.S. dollars as of the acquisition date of May 14, 2004. The results of operations of EWCO and Steelbank are included in the consolidated statement of
operations from April 2, 2004, and May 14, 2004, respectively. The following table summarizes the final allocation of the purchase price to the assets
acquired and liabilities assumed at the date of acquisition: 74




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) EugeneWelding
    
    
    SteelbankCurrent assets
    
    $
    9,972,486
    
    
    $
    1,805,420Property, plant and equipment
    
    
    573,891
    
    
    
    62,175Goodwill
    
    
    
    
    
    
    1,106,279Other intangible assets
    
    
    
    
    
    
    410,000Other assets
    
    
    75,800
    
    
    
    Current liabilities
    
    
    (9,380,408
    )
    
    
    (1,727,311
    )Long term liabilities
    
    
    (542,279
    )
    
    
    Net assets acquired
    
    $
    699,490
    
    
    $
    1,656,563
 The following unaudited proforma consolidated information is provided as if the acquisitions
of EWCO and Steelbank had occurred as of the beginning of the applicable period: The unaudited proforma information does not reflect any benefits from synergies that might be
achieved from combining operations and does not reflect the actual results that would have
occurred, nor is it necessarily indicative of future results of operations of the combined
companies. The unaudited pro forma amounts include adjustments that are based upon available
information and various assumptions that the Company believes are reasonable. Year Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands, except per share data)Net sales
    
    $
    51,037
    
    
    $
    33,931
    
    
    $
    32,636Net loss before taxes
    
    
    (1,340
    )
    
    
    (1,557
    )
    
    
    (574
    )Net loss
    
    $
    (1,328
    )
    
    $
    (1,546
    )
    
    $
    (594
    )Net loss per common share  basic and
diluted
    
    $
    (1.08
    )
    
    $
    (1.29
    )
    
    $
    (0.57
    )Weighted average number of common shares
outstanding
    
    
    1,227,300
    
    
    
    1,194,998
    
    
    
    1,050,415
  3.
    Goodwill and Intangible Assets The changes in goodwill and intangible assets for 2004 is as follows: CovenantNot toGoodwill
    
    
    Customer Base
    
    
    Compete
    
    
    TotalBalance at December 31, 2003
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Acquisition of Steelbank
    
    
    1,106,279
    
    
    
    80,000
    
    
    
    330,000
    
    
    
    1,516,279Foreign Currency Impact
    
    
    173,531
    
    
    
    12,556
    
    
    
    51,790
    
    
    
    237,8771,279,810
    
    
    
    92,556
    
    
    
    381,790
    
    
    
    1,754,1562004 Amortization
    
    
    
    
    
    
    (3,333
    )
    
    
    (34,375
    )
    
    
    (37,708
    )Balance at December 31, 2004, Net
    
    $
    1,279,810
    
    
    $
    89,223
    
    
    $
    347,415
    
    
    $
    1,716,448
 75




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) The customer base is being amortized over 15 years and the covenant not to compete is being
amortized over the term of the covenant, 6 years. The following is a schedule of future
amortization expense for intangible assets: customer base and the covenant not to compete: 2005
    
    $
    70,8422006
    
    
    70,8422007
    
    
    70,8422008
    
    
    70,8422009
    
    
    70,842Thereafter
    
    
    82,428Totals
    
    $
    436,638
  4.
    Details of Balance Sheet 2004
    
    
    2003INVENTORIES:Raw Materials
    
    $
    4,289,648
    
    
    $
    Work-in-process
    
    
    602,390
    
    
    
    Finished Goods
    
    
    2,599,276
    
    
    
    Supplies
    
    
    113,070
    
    
    
    Total
    
    $
    7,604,384
    
    
    $
    
 The Company has no inventory obsolescence reserve as of December 31, 2004. PROPERTY PLANT AND EQUIPMENT:Machinery and equipment
    
    $
    394,554
    
    
    
    Leasehold improvements
    
    
    211,622
    
    
    
    Computer equipment
    
    
    32,710
    
    
    
    Transportation equipment
    
    
    24,500
    
    
    
    Furniture and fixtures
    
    
    77,090
    
    
    
    Total
    
    
    740,476
    
    
    
    Less accumulated depreciation and amortization
    
    
    105,425
    
    
    
    Net property, plant and equipment
    
    $
    635,051
    
    
    $
    
 76




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5.
    Short Term DebtShort-term debt can be summarized as follows: December 31,
    
    
    December 31,2004
    
    
    2003Revolving Credit Facility
    
    $
    6,711,387
    
    
    $
    Note issued in connection with
redemption of EWCO shares
    
    
    670,000
    
    
    
    Notes issued with acquisition
of Steelbank
    
    
    764,388
    
    
    
    Full recourse factoring liabilities
    
    
    1,171,931
    
    
    
    Bridge loan payable
    
    
    2,150,000Total
    
    $
    11,467,706
    
    
    $
    
 At December 31, 2004, Steelbank Inc. had a full-recourse factoring arrangement with
Greenfield Commercial Credit, Inc. for the extension of up to approximately $1,246,000 of credit,
representing approximately $1,557,000 in face amount of eligible receivables sold and outstanding at any
time. The facility is secured by all of the assets of Steelbank and all obligations of Steelbank under the arrangements are guaranteed
by the Company. Steelbank receives 80% of the face amount of receivables that it desires to
sell and Greenfield Commercial Credit, Inc. agrees, in its discretion, to buy. Greenfield
Commercial Credit, Inc. may require Steelbank to re-purchase any receivables sold, on demand,
for the unpaid face amount of such receivables. The full-recourse factoring arrangement was
terminated with the closing of the IPO in February 2005. The facility prohibits Steelbank from
granting any extension of time for payment of accounts receivable, compromising or settling any
accounts receivable for less than the full amount of such accounts receivable, releasing any
debtor to such accounts receivable, or granting any credits, discounts, allowances, deductions,
return authorizations or the like with respect to any accounts receivable. In addition,
Steelbank is prohibited from creating or permitting any lien with respect to the collateral
granted under the arrangement, except for subordinated liens under the Companys 2004 note
financing notes. As of December 31, 2004, approximately $1,172,000 in face amount of
receivables were sold and not yet collected, and approximately $385,000 was available
for additional sales under the arrangement with Greenfield Commercial Credit, Inc. Prior to the acquisition, EWCO redeemed 90% of the then outstanding shares from its shareholder for $3,603,144, of which $670,000 is represented by a promissory note (recorded in short term debt) payable out of the proceeds of the Companys initial public offering of common shares and secured by EWCO shares that would represent 60% of the outstanding shares. The
remaining $2,933,144 of the redemption price was retained by EWCO to repay a note to EWCO from the former sole shareholder relating to his acquisition of EWCO in 2001. Bridge Loans In February and March 2004, the Company raised $150,000 in an offering of notes and
warrants in anticipation of, and under the same terms associated with, the April 2004 note
financing described below. The notes were issued at their face amount, bore interest at 8% a
year, 15% after January 5, 2005, and were paid at the February 2005 closing of our initial
public offering. The notes were secured by our assets and the assets of our subsidiaries, but
were subordinate to our subsidiaries secured bank 77




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) financing. Our net proceeds, after deducting the expenses of the offering, were approximately
$146,000. We also granted the purchasers in the February and March offerings warrants to
purchase 30,000 common shares exercisable at $5.00 a share. The warrants are exercisable for
five years beginning August 16, 2005. In April 2004, the Company closed a private note financing which provided the Company with
$2,000,000 in gross proceeds, approximately $1,725,000 after the placement agents fees and the
expenses of the offering. These proceeds were used primarily to facilitate the acquisition of
Eugene Welding Co. and Steelbank, Inc. (see below), for working capital and general corporate
purposes, including the payment of then accrued expenses and expenses in connection with the
Companys proposed initial public offering of common shares. The debt was issued at its face
amount and bears interest at 8% per annum, 15% after January 5, 2005, payable in cash upon
maturity. Maturity occurred at the February 2005 closing of our initial public offering of
common shares. The notes were secured by our assets and the assets of our subsidiaries, but
were subordinate to our subsidiaries secured bank financing. We also granted the purchasers
in this note offering five-year cashless exercise warrants to purchase 435,000 common shares at
$5.00 a share. The warrants are exercisable for five years beginning August 16, 2005. The value of the 465,000 shares granted above was $651,583 and was amortized as interest
expense in 2004. As of December 31, 2004 the value of all warrants issued was fully amortized.  6.
    Long Term Debt and Capital Lease Obligations December 31,2004Term loan
    
    $
    1,347,533Notes payable to former shareholders of Steelbank
    
    
    336,272Other, including capital lease obligations
    
    
    35,520Total
    
    
    1,719,325Less current portion, of long-term debt and capital lease obligations
    
    
    (405,107
    )Long-term portion of long-term debt and capital lease obligations
    
    $
    1,314,218
 Maturities of long-term debt and capital lease obligations for the years ending December 31 are as follows: 2005
    
    $
    405,1072006
    
    
    401,8932007
    
    
    398,5482008
    
    
    281,4432009
    
    
    232,334$
    1,719,325
 In August 2004, EWCO refinanced its credit facility with Standard Federal Bank, N.A.,
including a revolving credit facility for up to $7,000,000, which was increased to $9,000,000 in
December 2004, subject to a borrowing base based on eligible inventory and receivables , originally maturing August 31,
2007, and a $1,394,000 term loan. The term loan is payable in equal monthly installments of
principal based on a five 78




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) year amortization ending August 1, 2009, but matures August 31, 2007 if the revolving credit
facility is not renewed. The loans are secured by all of EWCOs personal property and are
guaranteed by Tarpon. The principal amount outstanding bears interest, payable monthly, at the
banks prime rate, plus, until completion of our initial public offering, plus 0.375% (at a total
of 5.63% as of December 31, 2004). The loan agreement requires EWCO to maintain a minimum debt
service coverage ratio and minimum tangible net worth. It also generally prohibits dividends and
limits EWCOs ability to make capital expenditures. EWCO paid a 1% closing fee and must pay a
0.25% unused line of credit fee. EWCO is also subject to a 1% prepayment fee if the loans are
prepaid any time before maturity. As of December 31, 2004, $6,711,387 was outstanding under the
revolving credit facility, $1,347,533 was outstanding under the term loan, and approximately
$1,375,000 was available for borrowing under the revolving credit facility. The installment notes payable to former shareholders of Steelbank are due in annual
installments of $112,091 plus interest at 8.0% through December 2007. The notes are secured by all
of the shares of Steelbank, and the assets of Steelbank.  7.
    Leases Other facilities and equipment are leased under arrangements that are accounted for as
operating leases. Total rental expense was $261,000 in 2004. No expense was incurred in 2003 and
2002. Future minimum operating lease payments at December 31, 2004 were as follows: Operating Leases2005
    
    $
    394,3832006
    
    
    285,2552007
    
    
    16,5482008
    
    
    11,6582009
    
    
    5,829Total
    
    $
    713,673
  8.
    Income Taxes Total income tax expense for the year ended December 31, 2004 was a benefit of $70,986. The
entire benefit relates to tax refunds available in Canada for Steelbank. As a result of the
valuation allowances applied to the net operating losses and other net deferred tax assets, the
Company did not incur any additional tax expense for the three years ended December 31, 2004, 2003
and 2003. A reconciliation of income taxes computed using the federal statutory rate to the taxes
reported in our statements of operations is as follows: 79




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) Year Ended December 31,2004
    
    
    2003
    
    
    2002Net loss before income taxes
    
    $
    (2,065,500
    )
    
    $
    (650,386
    )
    
    $
    (766,480
    )Federal statutory rate
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %Tax computed at federal statutory rate
    
    
    (702,270
    )
    
    
    (221,131
    )
    
    
    (260,603
    )Increase or decrease in taxes from:Effect of nondeductible items
    
    
    14,743Foreign tax rate differential
    
    
    (9,101
    )Valuation allowance
    
    
    625,642
    
    
    
    221,131
    
    
    
    260,603Reported income taxes
    
    $
    (70,986
    )
    
    $
    
    
    
    $
    
 Deferred tax assets (liabilities) consist of the following: December 31,2004
    
    
    2003
    
    
    2002Net operating loss carry-forwards
    
    $
    1,083,879
    
    
    $
    481,734
    
    
    $
    260,603Allowance for doubtful accounts
    
    
    22,600
    
    
    
    
    
    
    
    Property and equipment
    
    
    28,501
    
    
    
    
    
    
    
    Foreign exchange losses
    
    
    63,400
    
    
    
    
    
    
    
    Deferred tax assets
    
    
    1,198,380
    
    
    
    481,734
    
    
    
    260,603Valuation allowance
    
    
    (1,198,380
    )
    
    
    (481,734
    )
    
    
    (260,603
    )Net deferred tax asset
    
    $
    
    
    
    $
    
    
    
    $
    
 Due to the historical losses incurred by the Company, a full valuation allowance for deferred
tax assets has been provided. If the Company achieves profitability, these deferred tax assets may
be available to offset future income taxes. The Companys net operating loss carry-forward at
December 31, 2004 and 2003 was approximately $3,187,882 and $1,417,000, respectively, and
expire as follows: $1,771,016 in 2024, $650,386 in 2023, and
$766,480 in 2022. 9. Related Party Transactions The Company employed its then Chairman and Chief Executive Officer for annual compensation of
$350,000 per year and reimbursement of business-related expenses. Included in Selling, General and
Administrative expenses for 2002 are wages of $45,390 for start-up services that the former
Chairman and Chief Executive Officer performed in November, 2001 and December, 2001. As of April
8, 2004, the Chairman and Chief Executive Officer was no longer an employee of the Company, but
remained as a consultant through an entity primarily owned by him. In addition, the former Chairman and Chief Executive Officers son was employed by the Company
as Assistant to the Chairman at an annual salary of $72,000. As of April 8, 2004, the son was no
longer an employee of the Company, but remained as a consultant through an entity partially owned
by him. In April 2004, the Company entered into a Management Consulting Agreement with Bainbridge
Advisors, L.L.C. (primarily owned by the former Chairman and Chief Executive Officer and his son).
The 80




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) Agreement has a three year term and provides for $15,000 per month in consulting fees in 2004,
and $20,000 per month as of March 1, 2005, a fee ranging from $200,000 to $300,000 for additional
acquisitions by the Company, and options to purchase 110,000 shares of the Companys stock. The following table summarizes the compensation paid to the former Chairman and Chief
Executive Officer and his son, individually and through Bainbridge Advisors, L.L.C.: December 31,2004
    
    
    2003
    
    
    2002Advisory services and expenses
    
    $
    163,900
    
    
    $
    
    
    
    $
    Salaries and benefits
    
    
    130,177
    
    
    
    451,571
    
    
    
    447,505Success fees
    
    
    400,000
    
    
    
    
    
    
    
    Total
    
    $
    694,077
    
    
    $
    451,571
    
    
    $
    447,505
 As of December 31, 2004, liabilities included $275,000 of the success fees owed for the EWCO
and Steelbank acquisitions consummated in 2004. Two of our initial stockholders provided consulting services to us in 2002, for which one of
them was paid $122,000 and the other was paid $87,500, which consisted of $37,500 in cash and
10,000 common shares issued in March 2004. One of our former officers and directors, and the husband of the holder of approximately 14.7%
of our outstanding common shares as of January 7, 2005, is also formerly a partner in a law firm we
engaged to perform legal services for us in 2003 and 2002. We paid them $45,889 for those services
in 2003 and $45,638 for those services in 2002. In March 2004, one of them became a partner in
another law firm that has performed legal services for us in 2004 and we expect them to continue to
do so. In addition, we paid one of our former officers and directors consulting fees of $23,000 in
2003. Between January and August 2004, we engaged one of our directors to provide consulting
services to us concerning our operations, general management and business development, at times and
places and in an amount determined by mutual agreement. We accrued $22,000 in fees for these
services including $10,000 payable in common shares at the closing of our initial public offering.
We issued 2,000 common shares to this director in February 2005. 10. Capitalization In connection with the Companys formation on January 16, 2002, four of our shareholders and
their family members received 904,131 of our common shares for an aggregate purchase price of $794. From March 2002 through June 2002, the Company privately placed 200,913 newly-issued common
shares to eight accredited investors, at a price of $3.73 per share, for gross proceeds of
$750,000. Our net proceeds, after deducting the expenses of the offering, were approximately
$747,000. 81




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) From December 2002 through October 2003, the Company privately placed 114,688 newly-issued
common shares to six accredited investors, at a price of $5.97 per share, for gross proceeds of
$685,000. Our net proceeds, after deducting the expenses of the offering, were approximately
$685,000. As part of the issuance of these common shares, we agreed that if an initial public
offering is completed, we will issue additional common shares to these purchasers so that the total
common shares they receive equals (1) 1.35 times the amount they invested in our initial public
offering, divided by (2) our initial public offering price per share. We issued an additional
70,262 shares to these shareholders as a result of our initial public offering, lowering their
effective purchase price to $3.70 a share. We effected a 1-for-3.69203259 reverse split in December 2003 and a 1-for-1.6176795 reverse
stock split in March 2004. The share numbers in these footnotes have been adjusted to reflect
these reverse stock splits. 11. Contingencies As of December 31, 2004 the Michigan Department of Environmental Quality (MDEQ) notified the
Company that it had concluded that the Company was a major source for certain air emissions and
that the Company had failed to apply for a Renewable Operating Permit for air emissions not covered
by its Permit to Install then in effect. The Company has informed us that it subsequently applied
for a revised Permit to Install to obviate the need for a Renewable Operating Permit and received
the revised Permit to Install in December 2004. The MDEQ and the Company have negotiated a
resolution of the violations alleged by MDEQ, and the Company has agreed in principle to pay a
settlement amount of approximately $31,000 to resolve the violations alleged by the MDEQ in July
2004. The MDEQ posted for public comment a proposed consent order memorializing the agreement, and
the MDEQ will accept public comment on the proposed consent order until April 20, 2005. The cost
of the violation has been fully provided and the Company has taken action to prevent future
assessments and fines. The Company is a party to various litigation matters arising in the ordinary course of
business. The ultimate legal and financial liability of this litigation cannot be estimated with
certainty, but management believes, based on their examination of these matters, experience to date
and discussions with counsel, that the ultimate liability will not be material to the Companys
business, financial condition or results of operations. 12. Employee benefit plans EWCO has three separate 401(k) plans. Two of these plans cover union employees who have
attained 18 years of age with six months of service. The participants can contribute up to 15% of
their compensation. EWCO matches 50% of the employee contributions based on the collective
bargaining agreement, not to exceed 5 percent of compensation. The employer contributions for
these two plans for 2004 were $39,644 and $6,924, respectively. The third 401(k) plan is for employees who are not covered by a collective bargaining
agreement, who have attained 18 years of age and who have 1,000 hours and six months of service.
The participants can contribute up to 15% of their salary and are eligible for an employer
discretionary contribution. EWCO matches 50% of the employee contributions up to 5% of employees
wages. The employer matching contributions for 2004 were $17,797. 82




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) 13. Geographic Information Revenues by country for EWCO and Steelbank are as follows for the year ended December 31, 2004: Year EndedDecember 312004United States
    
    $
    32,483,427Canada
    
    
    5,138,202Totals
    
    $
    37,621,629
 14. Product Sales Products sold to external customers were as follows for the year ended December 31, 2004: Year EndedDecember 31,2004Manufactured by us:Structural Steel Tubing
    
    $
    13,341,354Mechanical Steel Tubing
    
    
    1,280,391Steel Storage Rack Systems
    
    
    17,732,783Total
    
    $
    32,354,528Manufactured by others:Structural Steel Tubing
    
    $
    1,737,790Mechanical Steel Tubing
    
    
    3,160,564Other
    
    
    368,747Total:
    
    $
    5,267,101
 15. Subsequent Events On February 17, 2005 we closed our initial public offering of 2,850,000 common shares at an
offering price of $5.00 per share. Our estimated net proceeds from the offering were approximately
$12,048,750, after deducting the costs of the offering, substantially all of which were
or will be used to finance the acquisition of the Haines Road facility of Bolton Steel Tube Co.,
Ltd., to repay outstanding indebtedness related to prior acquisitions and for capital expenditures. The lead underwriter in our initial public offering exercised in full the over-allotment
option to purchase an additional 427,500 common shares, sold in our initial public offering at an
initial public offering price of $5.00 per share. We closed the
over-allotment sale on February 23, 2005. Net proceeds to the Company from the over-allotment exercise were approximately
$1,923,750. Proceeds of the over-allotment option are for capital expenditures and
working capital. 83




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) In February 2005, Steelbank consummated the acquisition of substantially all of the assets,
other than the real estate, of Haines Road from Bolton Steel Tube Co., Ltd. pursuant to an Asset
Purchase Agreement originally entered into in July 2004, as amended. The purchase price was an
aggregate of approximately $9,677,000 (Cdn.$11,860,000), consisting of (1) approximately $290,000
(Cdn.$356,000) in deposits paid before closing, (2) approximately $7,402,000 (Cdn.$9,072,000), paid
in cash at the closing of the acquisition, (3) approximately $979,000 (Cdn.$1,200,000) secured,
subordinated promissory note, payable 15 months after closing or by offset against amounts owed for
purchases by Bolton from Haines Road after closing, (4) approximately $1,005,000 (Cdn.$1,232,00)
for purchased inventory, payable within 45 days after the closing of the acquisition, (5) a
$200,000 success fee in connection with the transaction, payable to Bainbridge Advisors over 24
months, and (6) approximately $131,400 in expenses related to the transaction. We funded a portion
of the purchase price with proceeds of loans described in Item 7, under Liquidity and Capital
Resources  Financing Arrangements. Pursuant to a Guarantee between Tarpon and Bolton, Tarpon guaranteed Steelbanks obligations
under the secured subordinated promissory note executed by Steelbank in favor of Bolton. As part
of the transaction, we have agreed not to compete with Bolton with respect to hot-dipped galvanized
products for a period of six months after closing. We have also agreed to acquire the Haines Road real estate for an estimated aggregate of
approximately $4,651,000 (Cdn.$5,700,000), consisting of (1) approximately $3,264,000 (Cdn.$4,000,000) for the cash portion of the purchase price of the Haines Road real estate, with
approximately $163,000 (Cdn.$200,000) paid as a deposit and the balance payable within 90 days
after the closing of the acquisition, and (2) approximately $1,224,000 (Cdn.$1,500,000) secured
promissory note, payable 15 months after real estate closing date or, if the fair value of the
purchased real estate less the loans secured by the purchased real estate is not at least
approximately $408,000 (Cdn.$500,000)or if the first mortgage on the purchased real estate exceeds
approximately $3,019,000(Cdn.$3,700,000), payable on the real estate closing date. We expect to
seek approximately $3,019,000 (Cdn.$3,700,000) in mortgage financing, although we currently have no
commitment for the mortgage financing. We have also agreed to lease the Haines Road real estate
during the period between the acquisition closing date and the real estate closing date at a
monthly rent of approximately $62,300 (Cdn.$75,000). On February 17, 2005, Steelbank entered into a Loan Agreement with LaSalle Business Credit, a
division of ABN AMRO Bank N.V., Canada Branch. The credit facility provides for a revolving credit
line in the maximum principal amount of $8,000,000 Canadian dollars, subject to a borrowing base
based on eligible inventory and receivables and subject to reserves, and a term loan in the
principal amount of $2,100,000 Canadian dollars. Borrowings of Canadian dollars under the revolving credit facility bear interest at a floating
rate equal to the Lenders Canadian prime rate plus an applicable margin of between 0.75% and
1.25%. Borrowings of U.S. dollars under the revolving credit facility bear interest at a floating
rate equal to the Lenders U.S. prime rate. Under certain circumstances, Steelbank has the option
to convert all or any part of its Canadian or United States borrowings to an interest rate equal to
a Libor rate plus an applicable margin of between 2% and 2.75% or a BA rate plus an applicable
margin of between 2% and 2.75%. Interest on the revolving credit facility is payable monthly in
arrears. The full amount borrowed under the revolving credit facility will mature on February 17,
2008, subject to renewal by the Lender and Steelbank on terms yet to be determined. 84




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS  (Continued) Principal on the term loan is payable in sixty equal monthly installments of $35,000 Canadian
dollars beginning on March 31, 2005. The term loan bears interest, which is payable monthly in
arrears, at a floating rate equal to the Lenders Canadian prime rate plus an applicable margin of
between .75% and 1.25%. The entire amount of the term loan facility will mature on February 17,
2010. The obligations under the Loan Agreement are unconditionally guaranteed by Tarpon, and are
secured by a security interest in substantially all of the tangible and intangible assets of
Steelbank and Tarpon, other than Tarpons common shares of Eugene Welding Company. Steelbanks
obligations under the Loan Agreement are also secured by a pledge of the capital stock of Steelbank
pursuant to a share pledge agreement between Tarpon and Lender. The Loan Agreement contains customary covenants that will limit the ability of Steelbank to,
among other things, guarantee additional indebtedness, incur indebtedness, create liens, pay
dividends, make certain types of investments, enter into transactions with affiliates, make capital
expenditures in excess of $500,000 Canadian dollars in any fiscal year, sell assets, merge with
other companies or enter into any transaction outside the ordinary course of business. The Loan Agreement also requires compliance with several financial covenants, including
adjusted net worth of at least $7,555,530 (CAN $9,100,000) or 90% of Steelbanks actual net worth
at February 17, 2005, if higher. For quarters ending June 30, 2005, the minimum adjusted net worth
of the previous quarter will be augmented by 75% of the Net Income for that quarter. In the case
where there is a loss for the quarter, the minimum adjusted net worth will not change from the
previously reported minimum adjusted net worth. The adjusted net worth at December 31, 2004 for
Steelbank (including Haines Road) but before taking into account the changes that came into effect
as a result of the ABN AMRO banking arrangement is $10,880,400. It also requires Steelbank to maintain debt service coverage ratio (generally net income
adjusted for depreciation and amortization, non cash transactions, and capital expenditures divided
by the total of all principal payments of long term debt, capital leases, subordinated debt and all
payments in respect of any distribution), not to exceed 1.25 to 1.00. At December 31, 2004,
Steelbank (including Haines Road) debt service coverage ratio was 0.87 to 1.00. It also requires Steelbank to maintain interest coverage (Generally net income adjusted for
interest expense, bank fees and net costs under interest rate contracts, taxes, depreciation and
amortization and non cash items divided by interest expense plus bank fees and net costs under
interest rate contracts), of at least 1.50 to 1.00. At December 31, 2004, Steelbank (including
Haines Road) pro forma interest coverage was 2.89 to 1.00. 85




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QUARTERLY INFORMATION (unaudited) The following is a summary of Tarpons quarterly operating results for the year ended December
31, 2004 and 2003: QuarterFirst
    
    
    Second
    
    
    Third
    
    
    Fourth(in thousands, except per share data)Year Ending December 31, 2004Net sales
    
    $
    
    
    
    $
    11,993
    
    
    $
    12,959
    
    
    $
    12,670Gross profit
    
    
    
    
    
    
    1,502
    
    
    
    1,453
    
    
    
    795Net income (loss)
    
    
    (165
    )
    
    
    (213
    )
    
    
    (591
    )
    
    
    (1,026
    )Net income (loss) per common
share  basic and diluted
    
    $
    (0.14
    )
    
    $
    (0.17
    )
    
    $
    (0.48
    )
    
    $
    (0.83
    )
 QuarterFirst
    
    
    Second
    
    
    Third
    
    
    Fourth(in thousands, except per share data)Year Ending December 31, 2003Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Gross profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (146
    )
    
    
    (191
    )
    
    
    (159
    )
    
    
    (154
    )Net income (loss) per common
share  basic and diluted
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.13
    )
    
    $
    (0.13
    )
 We acquired Eugene Welding Company and Steelbank, Inc. in the second quarter of 2004. We
acquired Haines Road in February 2005. 86




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of
Eugene Welding Co. We have audited the balance sheets of Eugene Welding Co. (a Michigan corporation) as of March
31, 2004 and December 31, 2003,and 2002, and the statements of operations, shareholders equity,
and cash flows for the three month period ended March 31, 2004, and the three years in the period
ended December 31, 2003. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform an audit of its
internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as basis for designating audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. In our opinion, these financial statements present fairly, in all material respects, the
financial position of the Company as of March 31, 2004 and December 31, 2003 and 2002, and the
results of its operations and its cash flows for the three month period ended March 31, 2004, and
each of the three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. Schedule II has been subjected to auditing procedures
applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly
stated, when considered in relation to the basic consolidated financial statements taken as a
whole. /s/ GRANT THORNTON LLPSouthfield, Michigan
April 1, 2005
 87




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EUGENE WELDING CO. 
 BALANCE SHEETS
 March 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    431,739
    
    
    $
    269,555
    
    
    $
    497,148Accounts receivable (less allowance for doubtful accounts of
$222,988 at March 31, 2004, $321,941 at December 31,
2003, and $38,099 at December 31, 2002)
    
    
    4,868,290
    
    
    
    3,847,022
    
    
    
    3,070,189Inventories
    
    
    4,370,151
    
    
    
    5,117,905
    
    
    
    5,361,977Prepaid expenses
    
    
    142,705
    
    
    
    249,038
    
    
    
    222,849Total current assets
    
    
    9,812,885
    
    
    
    9,483,520
    
    
    
    9,152,163Property, Plant equipment  Net
    
    
    910,989
    
    
    
    937,926
    
    
    
    975,754OTHER ASSETS:Note receivable  other
    
    
    45,607
    
    
    
    45,607
    
    
    
    Deferred tax asset
    
    
    75,800
    
    
    
    
    
    
    
    Total other assets
    
    
    121,407
    
    
    
    45,607
    
    
    
    TOTAL ASSETS
    
    $
    10,845,281
    
    
    $
    10,467,053
    
    
    $
    10,127,917LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Note payable  bank
    
    $
    4,035,485
    
    
    $
    4,065,315
    
    
    $
    3,525,982Accounts payable
    
    
    3,507,750
    
    
    
    3,958,350
    
    
    
    2,717,154Accounts payable  inter-company
    
    
    143,677
    
    
    
    
    
    
    
    Distributions payable
    
    
    
    
    
    
    19,616
    
    
    
    19,616Accrued expenses
    
    
    678,079
    
    
    
    436,512
    
    
    
    362,604Income taxes payable
    
    
    135,713
    
    
    
    
    
    
    
    Current maturities on long-term debt
    
    
    209,704
    
    
    
    240,487
    
    
    
    242,880Total current liabilities
    
    
    8,710,408
    
    
    
    8,720,280
    
    
    
    6,868,236LONG-TERM DEBT, LESS CURRENT MATURITIES:
    
    
    486,179
    
    
    
    534,528
    
    
    
    698,752COMMITMENTS AND CONTINGENCIES DEFERRED INCOME TAXES:
    
    
    56,100
    
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Common shares; par value $10 per share; authorized, 5,000
shares; issued and outstanding, 40 shares at March 31,
2004, and 40 shares at December 31, 2003, and 2002
    
    
    400
    
    
    
    400
    
    
    
    400Shareholder note receivable
    
    
    (2,933,144
    )
    
    
    (2,933,144
    )
    
    
    (2,933,144
    )Retained earnings
    
    
    4,525,338
    
    
    
    4,144,989
    
    
    
    5,493,673Total shareholders equity
    
    
    1,592,594
    
    
    
    1,212,245
    
    
    
    2,560,929TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    10,845,281
    
    
    $
    10,467,053
    
    
    $
    10,127,917
 The accompanying notes are an integral part of the financial statements 88




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EUGENE WELDING CO. 
 STATEMENTS OF OPERATIONS
 Three Months
    
    
    Year ended December 31, 2003Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2001REVENUES:Sales
    
    $
    10,606,365
    
    
    $
    26,611,349
    
    
    $
    24,753,398
    
    
    $
    28,512,361Less discounts allowed
    
    
    57,584
    
    
    
    169,678
    
    
    
    108,958
    
    
    
    125,986Net revenues
    
    
    10,548,781
    
    
    
    26,441,671
    
    
    
    24,644,440
    
    
    
    28,386,375COST OF GOODS SOLD:Materials
    
    
    5,937,979
    
    
    
    15,102,702
    
    
    
    13,270,445
    
    
    
    12,676,491Direct labor
    
    
    713,215
    
    
    
    2,212,416
    
    
    
    1,964,284
    
    
    
    2,282,303Manufacturing overhead
    
    
    2,485,814
    
    
    
    7,647,425
    
    
    
    7,493,444
    
    
    
    9,776,477Total cost of goods sold
    
    
    9,137,008
    
    
    
    24,962,543
    
    
    
    22,728,173
    
    
    
    24,735,271Gross profit
    
    
    1,411,773
    
    
    
    1,479,128
    
    
    
    1,916,267
    
    
    
    3,651,104OTHER OPERATING EXPENSES:Selling,
general and administrativeexpenses
    
    
    814,027
    
    
    
    2,398,850
    
    
    
    1,664,065
    
    
    
    2,037,389Depreciation and amortization
    
    
    35,445
    
    
    
    147,508
    
    
    
    150,409
    
    
    
    234,638Loss on disposal of property and
   equipment
    
    
    
    
    
    
    4,029
    
    
    
    32,247
    
    
    
    1,490Total operating expenses
    
    
    849,472
    
    
    
    2,550,387
    
    
    
    1,846,721
    
    
    
    2,273,517OPERATING INCOME (LOSS):
    
    
    562,301
    
    
    
    (1,071,259
    )
    
    
    69,546
    
    
    
    1,377,587OTHER INCOME (EXPENSE):Miscellaneous income/(expense)
    
    
    (14,549
    )
    
    
    11,298
    
    
    
    109,490
    
    
    
    8,605Interest expense
    
    
    (51,390
    )
    
    
    (200,234
    )
    
    
    (183,049
    )
    
    
    (201,022
    )Interest and dividend income
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    3,090Total other income (expense)
    
    
    (65,939
    )
    
    
    (188,895
    )
    
    
    (73,559
    )
    
    
    (189,327
    )INCOME (LOSS) BEFORE
INCOME TAXES:
    
    
    496,362
    
    
    
    (1,260,154
    )
    
    
    (4,013
    )
    
    
    1,188,260PROVISION FOR INCOME TAXES:Income tax expense
    
    
    135,713
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    (19,700
    )
    
    
    
    
    
    
    Provision for income taxes
    
    
    116,013
    
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    $
    380,349
    
    
    $
    (1,260,154
    )
    
    $
    (4,013
    )
    
    $
    1,188,260
 The accompanying notes are an integral part of the financial statements 89




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EUGENE WELDING CO. 
 STATEMENTS OF SHAREHOLDERS EQUITY
 Number of
    
    
    
    
    
    
    
    
    
    
    Shareholder
    
    
    TotalCommon
    
    
    Common
    
    
    Retained
    
    
    Note
    
    
    ShareholdersShares
    
    
    Shares
    
    
    Earnings
    
    
    Receivable
    
    
    EquityBalance at January 1, 2001
    
    
    40
    
    
    $
    400
    
    
    $
    5,814,764
    
    
    
    ($2,933,144
    )
    
    $
    2,882,020Net Income
    
    
    
    
    
    
    
    
    
    
    1,188,260
    
    
    
    
    
    
    
    1,188,260Shareholder distributions
    
    
    
    
    
    
    
    
    
    
    (104,583
    )
    
    
    
    
    
    
    (104,583
    )Balance at December 31, 2001
    
    
    40
    
    
    $
    400
    
    
    
    6,898,441
    
    
    
    (2,933,144
    )
    
    
    3,965,697Net loss
    
    
    
    
    
    
    
    
    
    
    (4,013
    )
    
    
    
    
    
    
    (4,013
    )Shareholder distributions
    
    
    
    
    
    
    
    
    
    
    (1,400,755
    )
    
    
    
    
    
    
    (1,400,755
    )Balance at December 31, 2002
    
    
    40
    
    
    $
    400
    
    
    
    5,493,673
    
    
    
    (2,933,144
    )
    
    
    2,560,929Balance at January 1, 2003
    
    
    40
    
    
    $
    400
    
    
    $
    5,493,673
    
    
    
    ($2,933,144
    )
    
    $
    2,560,929Net loss
    
    
    
    
    
    
    
    
    
    
    (1,260,154
    )
    
    
    
    
    
    
    (1,260,154
    )Shareholder distributions
    
    
    
    
    
    
    
    
    
    
    (88,530
    )
    
    
    
    
    
    
    (88,530
    )Balance at December 31, 2003
    
    
    40
    
    
    $
    400
    
    
    $
    4,144,989
    
    
    
    ($2,933,144
    )
    
    $
    1,212,245Net income
    
    
    
    
    
    
    
    
    
    
    380,349
    
    
    
    
    
    
    
    380,349Balance at March 31, 2004
    
    
    40
    
    
    $
    400
    
    
    $
    4,525,338
    
    
    
    ($2,933,144
    )
    
    $
    1,592,594
 The accompanying notes are
an integral part of the financial statements 90




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EUGENE WELDING CO. 
 STATEMENT OF CASH FLOWS
 Three MonthsEnded March 31,
    
    
    Year ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    380,349
    
    
    $
    (1,260,154
    )
    
    $
    (4,013
    )
    
    $
    1,188,260Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:Depreciation and amortization
    
    
    35,445
    
    
    
    147,508
    
    
    
    150,409
    
    
    
    234,638Loss on disposals of property and equipment
    
    
    
    
    
    
    4,028
    
    
    
    32,247
    
    
    
    1,490Deferred income taxes
    
    
    (19,700
    )
    
    
    
    
    
    
    Changes in assets and liabilities:Accounts receivable (increase) decrease
    
    
    (1,021,268
    )
    
    
    (776,833
    )
    
    
    1,933,646
    
    
    
    (1,059,786
    )Inventory (increase) decrease
    
    
    747,753
    
    
    
    244,072
    
    
    
    (1,766,336
    )
    
    
    2,234,055Prepaid expenses (increase) decrease
    
    
    106,332
    
    
    
    (26,189
    )
    
    
    (40,321
    )
    
    
    (72,768
    )Note receivable  other (increase)
    
    
    
    
    
    
    (45,607
    )
    
    
    
    
    
    
    Refundable taxes increase(decrease)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,349Distributions payable (decrease)
    
    
    (19,616
    )
    
    
    
    
    
    
    
    
    
    
    Accounts payable and accrued expenses
increase (decrease)
    
    
    (65,354
    )
    
    
    1,315,104
    
    
    
    765,762
    
    
    
    (310,984
    )Accrued income taxes increase
    
    
    135,713
    
    
    
    
    
    
    
    
    
    
    
    Cash provided by (used in ) operations
    
    $
    279,654
    
    
    $
    (398,071
    )
    
    $
    1,071,394
    
    
    $
    2,294,254CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (8,506
    )
    
    
    (113,709
    )
    
    
    (340,882
    )
    
    
    (2,852,441
    )Net cash used in investing activities
    
    
    (8,506
    )
    
    
    (113,709
    )
    
    
    (340,882
    )
    
    
    (2,852,441
    )CASH FLOWS
FROM FINANCING ACTIVITIES:Net (repayments) borrowings under lines of credit
    
    
    (29,830
    )
    
    
    539,333
    
    
    
    227,519
    
    
    
    906,363Proceeds from long-term debt
    
    
    13,057
    
    
    
    185,893
    
    
    
    912,846
    
    
    
    Principal payments on long-term debt
    
    
    (92,191
    )
    
    
    (352,509
    )
    
    
    (140,544
    )
    
    
    (88,668
    )Shareholder distributions
    
    
    
    
    
    
    (88,530
    )
    
    
    (1,400,755
    )
    
    
    (104,583
    )Cash provided by (used for) financing activities
    
    
    (108,964
    )
    
    
    284,187
    
    
    
    (400,934
    )
    
    
    713,112INCREASE (DECREASE) IN CASH AND CASH AND CASH
EQUIVALENTS
    
    
    162,184
    
    
    
    (227,593
    )
    
    
    329,578
    
    
    
    154,925CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    269,555
    
    
    
    497,148
    
    
    
    167,570
    
    
    
    12,645CASH AND CASH EQUIVALENTS
END OF PERIOD
    
    $
    431,739
    
    
    $
    269,555
    
    
    $
    497,148
    
    
    $
    167,570Supplemental Cash Flow Information:Non-cash transaction  Note Receivable
Shareholder
    
    $
    
    
    
    $
    198,967
    
    
    $
    182,130
    
    
    $
    220,989Cash paid during the period for interest
    
    $
    51,390
    
    
    $
    198,967
    
    
    $
    182,130
    
    
    $
    220,989Non-cash exchange of note for receivable
    
    $
    
    
    
    $
    45,607
    
    
    $
    
    
    
    $
    
 The accompanying notes
are an integral part of the financial statements 91




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EUGENE WELDING CO. 
 NOTES TO FINANCIAL STATEMENTS 1. Organization Eugene Welding Co. (the Company) is a Michigan corporation formed in 1954. The Company
manufactures structural steel tubing and steel storage rack systems at two manufacturing facilities
in Michigan, north of Detroit. We currently manufacture structural steel tubing, which is used as
a component for products in original equipment manufacturer automotive, boating, industrial
equipment, construction, agricultural, steel service center, leisure and recreational vehicle
markets, such as trailer hitches, storage racks, boating trailers, boat hoists, fork lifts,
scaffolding, farm implement components, recreational vehicles, exercise equipment and barbecues.
In addition, we manufacture steel storage rack systems, including selective racks, drive-in/through
racks, push back racks, cantilevered racks, archival storage systems and order picking systems used
in the home center, retail distribution, public warehouse and commercial and industrial
distribution markets. 2. Summary of Significant Accounting Policies Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity date of three
months or less to be cash equivalents. Accounts Receivable and Concentration of Credit Risk Periodically throughout each year, the Company maintained a balance in one bank account in
excess of the federally insured limit of $100,000. Accounts receivable are due within 30 to 60 days and are stated at amounts due from customers
net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual terms
are considered past due. The Company determines its allowance by considering a number of factors,
including the length of time an account is past due, the Companys previous loss history, the
customers current ability to pay its obligation and the condition of the general economy and the
industry as a whole. Accounts receivable are written off when they become uncollectible and
payments subsequently received on such receivables are credited to the allowance for doubtful
accounts. The Company had two major customers in the three months ended March 31, 2004 that accounted
for ten percent or more of net sales in those periods. Sales to these customers amounted to
approximately 36%. Accounts receivable balances due from two significant customers at March 31,
2004, and December 31, 2003, were 23% and 31% of total accounts receivable, respectively. Revenue Recognition For sales of products and scrap, revenue is recognized at the time the product is shipped to
customers. Scrap sales are recognized as a reduction in cost of goods sold. 92




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EUGENE WELDING CO. NOTES TO FINANCIAL STATEMENTS (continued) Income Taxes Through December 31, 2003, the Company, with the consent of its shareholders, had elected under the
Internal Revenue Code to be an S corporation. In lieu of corporation income taxes, the
shareholders of an S corporation are taxed on their proportionate share of the Companys taxable
income. Therefore, no provision or liability for federal income taxes is included in these
financial statements for twelve month periods ended December 31, 2003, 2002, or 2001. EWCO ceased
to be taxed as an S corporation effective January 1, 2004, and since that date has recognized a
provision for corporate income taxes. Beginning January 1, 2004 when the Company ceased to be taxed as a Subchapter S Corporation,
deferred income taxes are provided for timing differences between financial statement income and
tax return income under the provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which requires deferred income taxes to be computed on the asset and
liability method and deferred tax assets are recognized only when realization is certain. Such
deferred income tax asset and liability computations are based on enacted tax laws and rates
applicable to periods in which the differences are expected to affect taxable income. The
principal timing difference arises from non-deductible reserves and use of accelerated tax
depreciation for tax purposes. The effect of such difference is included annually on the income statement and on the balance
sheet as an adjustment to deferred income taxes. At March 31, 2004, deferred income tax assets in
the amount of $19,700 were calculated. Inventories Inventories are valued at the lower of cost or market value, with cost being determined on the
average cost method. Major classes of inventory consist of the following: March 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Raw materials
    
    $
    2,346,152
    
    
    $
    2,736,418
    
    
    $
    2,951,603Work in process
    
    
    617,766
    
    
    
    523,908
    
    
    
    220,299Finished goods
    
    
    1,303,331
    
    
    
    1,714,831
    
    
    
    1,998,274Supplies
    
    
    102,902
    
    
    
    142,748
    
    
    
    191,801Total
    
    $
    4,370,151
    
    
    $
    5,117,905
    
    
    $
    5,361,977
 93




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EUGENE WELDING CO. NOTES TO FINANCIAL STATEMENTS (continued) Property and Equipment Property and equipment are stated at cost. The principal categories of property, plant and
equipment are as follows: March 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002(unaudited)Machinery and equipment
    
    $
    5,888,928
    
    
    $
    5,827,540
    
    
    $
    5,751,410Leasehold improvements
    
    
    856,348
    
    
    
    909,229
    
    
    
    1,042,091Computer equipment
    
    
    775,619
    
    
    
    775,619
    
    
    
    768,551Transportation equipment
    
    
    588,482
    
    
    
    588,481
    
    
    
    584,714Furniture and fixtures
    
    
    115,126
    
    
    
    115,126
    
    
    
    93,546Total
    
    
    8,224,503
    
    
    
    8,215,995
    
    
    
    8,240,312Less accumulated depreciation and amortization
    
    
    7,313,514
    
    
    
    7,278,069
    
    
    
    7,264,558Net property, plant and equipment
    
    $
    910,989
    
    
    $
    937,926
    
    
    $
    975,754
 The Companys policy is to compute depreciation and amortization for financial statement
purposes using straight-line and accelerated methods over the following estimated useful lives: Machinery and equipment
    
    5  10 yearsLeasehold improvements
    
    life of leaseComputer equipment
    
    3  7 yearsTransportation equipment
    
    5 yearsFurniture and fixtures
    
    5  7 years
 Expenditures for repairs and maintenance are charged to operations and major betterments are
capitalized. Use of Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these estimates. 3. Shareholder Note Receivable Shareholder note receivable consists of a demand note receivable from the Companys
shareholder in the amount of $2,933,144, which was recorded as an offset against retained earnings.
This note bears interest at 1% over the prevailing bank prime lending rate, payable monthly. The
Company fully reserved the interest revenue due on this note for the three month period ended March
31, 2004 and year ended December 31, 2003, and 2002. 4. Note Receivable  Other Note receivable  other at December 31, 2003 consists of a note receivable from a customer, pursuant to the customers reorganization plan. This note was written off as uncollectible after March 31, 2004. 94




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EUGENE WELDING CO.
NOTES TO FINANCIAL STATEMENTS (continued) 5. Note Payable  Bank The Company had a demand revolving credit facility with a bank for $5,000,000, bearing
interest at the prevailing prime lending rate plus 1/2% at March 31, 2004 and 0% at December 31,
2003. Borrowings under this facility were secured by all assets of the Company, and were further
supported by the individual guarantee of the Companys stockholder. In aggregate, the total
obligation of the guarantor was not to exceed $912,846. This facility was cross-liened and cross
defaulted with the Companys installment note due to the bank (see Note 6). At December 31, 2003,
the Company has borrowings of $4,065,315, respectively against the facility. As of December 31,
2003 there was $964,515 and $934,685, respectively of unused availability for the credit facility.
The loan agreements required it to maintain minimum debt service coverage and debt to tangible net
worth ratios. They also limited the Companys ability to pay dividends or incur additional debt. At December 31, 2003, the Company was in default of certain financial loan covenants. Subsequent
to the balance sheet date, the Company and the bank entered into an agreement whereby the bank
agreed to forebear, until March 31, 2004, from taking any action to collect upon this note and the
Companys installment note (see Note 6), subject to certain conditions. These conditions include
increasing the interest rates on these borrowings to 1/2% over the prevailing prime lending rate.
Subsequent to the year-end the note was refinanced with the bank. 95




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EUGENE WELDING CO. NOTES TO FINANCIAL
STATEMENTS  (continued) 6. Long-Term Debt March 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002A financing arrangement with a finance company,
payable in monthly installments of $17,165, including
finance charges of 5.995%, through February 2004
    
    $
    
    
    
    $
    33,489
    
    
    
    A capital
lease payable in monthly installments of $3,586, including financial
costs at 7.38% through April 2003
    
    
    
    
    
    
    
    
    
    
    54,449A capital lease payable in monthly installments of $5,062,
Including finance costs at 6.64%, through April 2003
    
    
    
    
    
    
    
    
    
    
    19,979A capital
lease payable in monthly installments of $3,562, including finance costs at 7.38%, through
April 2004
    
    
    3,562
    
    
    
    14,117
    
    
    
    A capital lease payable in monthly installments of $219,
including finance costs at 14.04%, through August 2006
    
    
    5,352
    
    
    
    5,809
    
    
    
    A capital lease payable in monthly installments of $199,
including finance costs at 10.71%, through November 2006
    
    
    5,510
    
    
    
    5,951
    
    
    
    An installment note payable to a transportation company in
monthly installments of $1,000, bearing no interest,
through April 2005
    
    
    13,057
    
    
    
    
    
    
    
    An installment note payable to a bank in monthly
installments of $15,214, plus interest at 4.5% and 4.25%
at March 31, 2004 and December 31, 2003, respectively,
through August 2007. This note is secured by all assets of
the Company and was further supported by the individual
guarantee of the Companys stockholder until April 2004.
In aggregate, the total obligation of the guarantor is not
to exceed $912,846. This note is cross liened and cross
Defaulted with the Companys revolving credit facility
(see Note 5)
    
    
    638,992
    
    
    
    684,635
    
    
    
    867,204A secured equipment note payable to a bank in monthly
installments of $668, including interest at 5.24%, through
April 2008
    
    
    29,410
    
    
    
    31,014
    
    
    
    Total
    
    $
    695,883
    
    
    $
    775,015
    
    
    $
    941,632Less current portion
    
    
    209,704
    
    
    
    240,487
    
    
    
    242,880Long-term portion
    
    $
    486,179
    
    
    $
    534,528
    
    
    $
    698,752
 96




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EUGENE WELDING CO. NOTES TO FINANCIAL STATEMENTS  (continued) Maturities of long-term debt for the three months ending March 31, 2004 are as follows: 2005
    
    $
    209,7042006
    
    
    193,9532007
    
    
    192,5172008
    
    
    99,0442009
    
    
    665$
    695,883
 7. Income Taxes EWCO was an S corporation until December 31, 2003. As such did not record a provision for
current or deferred income taxes. As a result of its change to a C corporation, it is now subject
to income taxes on its taxable income, had no deferred tax assets, liabilities or operating loss
carry-forwards before January 01, 2004. Income tax expense includes the following: March 31, 2004Current federal income tax expense
    
    $
    135,713Deferred federal income tax expense
    
    
    (19,700
    )Total income tax expense
    
    $
    116,013
 Deferred tax asset and (liabilities) consist of the following: Deferred tax assets (liabilities) consist of the following: March 31, 2004Property and equipment
    
    $
    (56,100
    )Accounts receivable and other
    
    
    75,800Net deferred tax assets
    
    
    19,700Valuation allowance
    
    
    Net deferred tax asset
    
    $
    19,700
 A reconciliation of actual federal income tax expense to the expected amounts computed by applying
the statutory tax rate percent to earnings before income taxes is as follows: 97




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EUGENE WELDING CO. NOTES TO FINANCIAL STATEMENTS  (continued) Three Months EndedMarch 31, 2004Net income (loss) before income taxes
    
    $
    496,362Federal statutory rate
    
    
    34
    %Tax computed at federal statutory rate
    
    
    168,763Increase or decrease in taxes from:Effect of conversion to C corporation status
    
    
    (52,750
    )Reported income taxes
    
    $
    116,013
 8. Commitments and Contingencies The Company leases facilities and equipment used in its operations under lease agreements
expiring through October 2006. The operating lease requires the Company to pay the taxes,
insurance and maintenance expense related to the leased property. Rent expense, including
month-to-month rentals was $102,900 for the three months ended March 31, 2004. Minimum future
lease payments under non-cancelable leases at March 31, 2004 are summarized as follows: Year Ended December 31,2004
    
    $
    223,3432005
    
    
    293,1912006
    
    
    234,6592007
    
    
    16,5482008
    
    
    11,6582009
    
    
    5,829$
    785,228
 9. Employee Benefit Plans The Company has three separate 401(k) plans. Two of these plans cover union employees who
have attained 18 years of age with three months of service and 500 hours. The participants can
contribute up to 15% of their compensation. The Company matches the employee contributions based
on the collective bargaining agreement, not to exceed 5 percent of compensation. The employer
contributions for these two plans for the three months ended
March 31, 2004 and the years ended
December 31, 2003, 2002 and 2001 were $16,270, $69,846, $67,995
and $76,721, respectively. The third 401(k) plan is for employees who are not covered by a collective bargaining
agreement, who have attained 18 years of age and who have 1,000
hours and six months of service. The participants can contribute up
to 15% of their
salary and are eligible for an employer discretionary contribution. The Company matches the
employee contributions 50% up to 5% of employees wages. The employer matching contributions for
the three months ended March 31, 2004, and the year ended
December 31, 2003, 2002 and 2001 were $5,703,
$26,951, $26,912 and $31,102, respectively. 98




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EUGENE WELDING CO. NOTES TO FINANCIAL STATEMENTS  (continued) 10. Product Sales Products sold to external customers were as follows for the three months ended March 31, 2004,
and the years ended December 31, 2003, 2002, and 2001. Three Months EndedMarch 31,
    
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001Manufactured by us:Structural Steel Tubing
    
    $
    4,916,144
    
    
    $
    12,418,466
    
    
    $
    10,385,834
    
    
    $
    8,128,399Mechanical Steel Tubing
    
    
    304,877
    
    
    
    628,043
    
    
    
    518,280
    
    
    
    38,424Steel Storage Rack Systems
    
    
    5,318,567
    
    
    
    13,372,884
    
    
    
    13,714,059
    
    
    
    20,191,432Total
    
    $
    10,539,588
    
    
    $
    26,419,393
    
    
    $
    24,618,173
    
    
    $
    28,358,255Manufactured by others:Mechanical Steel Tubing
    
    $
    9,193
    
    
    $
    22,278
    
    
    $
    28,267
    
    
    $
    28,120
 11. Subsequent Events In November 2003, the Companys sole shareholder signed a Stock Purchase Agreement to sell all
of the issued and outstanding stock of the Company. In April 2004, Tarpon Industries, Inc. and the
Company acquired 100% of the Companys outstanding common shares pursuant to the agreement
described above. On April 21, 2004, Tarpon Industries acquired 100% of the outstanding common shares of EWCO
from its sole shareholder, who was its Chief Executive Officer from April to August 2004. Tarpon
acquired EWCO for $415,450 in cash paid to its sole shareholder for all of the then outstanding
EWCO shares. Prior to the acquisition, EWCO redeemed 90% of the then outstanding shares from him
for $3,603,144, of which $670,000 was represented by a promissory note that was paid out of the
proceeds of our initial public offering in February 2005. The remaining $2,933,144 of the
redemption price was retained by EWCO to repay a note to EWCO from the former sole shareholder
relating to his acquisition of EWCO in 2001. On April 6, 2004, the Company refinanced its credit facility with Comerica Bank, including a
revolving credit facility for up to $6,000,000 secured by its accounts receivable, inventory and
its equipment. The revolving credit facility was due on demand and was based on a borrowing base
based on qualifying accounts receivable and inventories. In August 2004, the Company refinanced its credit facility with Standard Federal Bank, N.A.,
including a revolving credit facility for up to $7,000,000, which was increased to $9,000,000 in
December 2004, subject to a borrowing base based on eligible inventory and receivables , originally
maturing August 31, 2007, a $1,394,000 term loan. The term loan is payable in equal monthly
installments of principal based on a five year amortization ending August 1, 2009, but matures
August 31, 2007 if the revolving credit facility is not renewed. The 99




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EUGENE WELDING CO. NOTES TO FINANCIAL STATEMENTS  (continued) loans are secured by all of EWCOs personal property and are guaranteed by Tarpon. The
principal amount outstanding bears interest, payable monthly, at the banks prime rate, plus, until
completion of our initial public offering, 0.375% (at a total of 5.63% as of December 31, 2004).
The loan agreement requires EWCO to maintain a minimum debt service coverage ratio and minimum
tangible net worth. It also generally prohibits dividends and limits EWCOs ability to make
capital expenditures. EWCO paid a 1% closing fee and must pay a 0.25% unused line of credit fee.
EWCO is also subject to a 1% prepayment fee if the loans are prepaid any time before maturity. As
of December 31, 2004, $6,711,387 was outstanding under the revolving credit facility, approximately
$1,348,000 was outstanding under the term loan, and approximately $1,375,000 was available for
borrowing under the revolving credit facility. 100




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and
Shareholders of Tarpon Industries, Inc. We have audited the accompanying balance sheets of the Haines Road operating location of Bolton
Steel Tube, Co., Ltd. (a Canadian corporation) as of December 31, 2003 and 2004, and the related
statements of operations and location equity and cash flows for each of the three years in the
period ended December 31, 2004. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Haines Road operating location of Bolton Steel Tube Co.,
Ltd. As of December 31, 2004 and 2003, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America. /s/ GRANT THORNTON LLP Southfield, Michigan
April, 29, 2005 101




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD. 
 BALANCE SHEETS OF SELECTED OPERATING LOCATION December 31,2004
    
    
    2003ASSETSCURRENT ASSETS:Intra-company receivable
    
    $
    3,305,700
    
    
    $
    1,724,055Inventories
    
    
    2,565,677
    
    
    
    1,846,772Refundable Income Taxes
    
    
    
    
    
    
    175,166Prepaid Expenses
    
    
    297,538
    
    
    
    55,780Total current assets
    
    
    6,168,915
    
    
    
    3,801,773Property, Plant and equipment  Net
    
    
    7,352,912
    
    
    
    7,525,574TOTAL ASSETS
    
    $
    13,521,827
    
    
    $
    11,327,347LIABILITIES AND LOCATION EQUITYCURRENT LIABILITIES:Accrued expenses
    
    $
    131,160
    
    
    $
    126,149Income taxes payable
    
    
    456,901
    
    
    
    Total current liabilities
    
    
    588,061
    
    
    
    126,149COMMITMENTS AND CONTINGENCIESDEFERRED INCOME TAXES:
    
    
    798,064
    
    
    
    732,713LOCATION EQUITY:Location Equity
    
    
    9,724,815
    
    
    
    8,961,481Other comprehensive income
    
    
    2,410,887
    
    
    
    1,507,004Total location equity
    
    
    12,135,702
    
    
    
    10,468,485TOTAL LIABILITIES AND LOCATION EQUITY
    
    $
    13,521,827
    
    
    $
    11,327,347
 The accompanying notes are an integral part of these financial statements 102




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD. 
 STATEMENTS OF OPERATIONS AND LOCATION EQUITY OF SELECTED OPERATING LOCATION Year ended December 312004
    
    
    2003
    
    
    2002REVENUES:Sales (net)
    
    $
    15,396,719
    
    
    $
    11,171,847
    
    
    $
    13,265,602COST OF GOODS SOLD:Materials
    
    
    10,222,673
    
    
    
    7,429,919
    
    
    
    7,871,380Direct labor
    
    
    890,985
    
    
    
    835,069
    
    
    
    1,124,410Manufacturing overhead
    
    
    1,370,240
    
    
    
    1,408,718
    
    
    
    1,352,175Total cost of goods sold
    
    
    12,483,898
    
    
    
    9,673,706
    
    
    
    10,347,965GROSS PROFIT
    
    
    2,912,821
    
    
    
    1,498,141
    
    
    
    2,917,637OTHER OPERATING EXPENSES:Selling, general and administrative
expenses
    
    
    1,123,914
    
    
    
    917,213
    
    
    
    814,839Depreciation and amortization
    
    
    30,403
    
    
    
    30,557
    
    
    
    26,318Total operating expenses
    
    
    1,154,317
    
    
    
    947,770
    
    
    
    841,157OPERATING INCOME
    
    
    1,758,504
    
    
    
    550,371
    
    
    
    2,076,480OTHER INCOME (EXPENSE):Feasibility expense
    
    
    
    
    
    
    100,891
    
    
    
    20,211Interest expense
    
    
    593,679
    
    
    
    577,026
    
    
    
    511,576Deferred financing expense
    
    
    
    
    
    
    35,138
    
    
    
    46,136Total other income (expense)
    
    
    593,679
    
    
    
    713,055
    
    
    
    577,923INCOME (LOSS) BEFORE
INCOME TAXES:
    
    
    1,164,825
    
    
    
    (162,684
    )
    
    
    1,498,557PROVISION FOR INCOME TAXES:Income tax expense / (benefit)
    
    
    391,230
    
    
    
    (158,992
    )
    
    
    248,028Deferred income taxes
    
    
    10,261
    
    
    
    112,626
    
    
    
    243,159Provision for income taxes / (benefit)
    
    
    401,491
    
    
    
    (46,366
    )
    
    
    491,187NET INCOME (LOSS):
    
    $
    763,334
    
    
    $
    (116,318
    )
    
    $
    1,007,370LOCATION EQUITY beginning
    
    
    8,961,481
    
    
    
    9,077,799
    
    
    
    8,070,429LOCATION EQUITY closing
    
    $
    9,724,815
    
    
    $
    8,961,481
    
    
    $
    9,077,799
 The accompanying notes are an integral part of these financial statements 103




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD. STATEMENT OF CASH FLOWS Year ended December 312004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    763,334
    
    
    $
    (116,318
    )
    
    $
    1,007,370Adjustments to reconcile net income (loss) to net
cash provided by operations:Depreciation and amortization
    
    
    748,268
    
    
    
    686,588
    
    
    
    543,246Deferred income taxes
    
    
    10,261
    
    
    
    112,626
    
    
    
    243,159Changes in assets and liabilities:Inventory (increase) decrease
    
    
    (498,416
    )
    
    
    2,315,777
    
    
    
    (7,757
    )Prepaid expenses (increase) decrease
    
    
    (203,743
    )
    
    
    50,868
    
    
    
    1,205Accrued expenses increase (decrease)
    
    
    (3,766
    )
    
    
    13,209
    
    
    
    (47,613
    )Refundable income taxes increase (decrease)
    
    
    553,196
    
    
    
    (406,509
    )
    
    
    (59,688
    )Net cash provided by operations
    
    $
    1,369,134
    
    
    $
    2,656,241
    
    
    $
    1,679,922CASH FLOWS FROM INVESTING ACTIVITIES:Net purchase (disposal) of property and equipment
    
    
    (120,115
    )
    
    
    (281,171
    )
    
    
    (684,889
    )CASH FLOWS FROM FINANCING ACTIVITIESIntra-company loans (net)
    
    
    (1,249,019
    )
    
    
    (2,375,070
    )
    
    
    (995,033
    )Net cash provided by (used in) financing activities
    
    
    (1,249,019
    )
    
    
    (2,375,070
    )
    
    
    (995,033
    )NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these financial statements 104




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD. 
 NOTES TO FINANCIAL STATEMENTS  1.
    Organization and Operations Haines Road was an operating location of Bolton Steel Tube Co., Ltd. (Bolton), an
Ontario corporation incorporated in 1981 and amalgamated in 1996. Bolton manufactured and sold
structural and mechanical steel tubing. Bolton had two operating locations, Bolton and Haines
Road. The Haines Road operating location is a manufacturing facility in Mississauga (near
Toronto), Ontario, Canada. The principal product manufactured at Haines Road is structural and
mechanical steel tubing, which is used as a component for products in fencing, automotive and
greenhouse markets. Tarpon Industries, Inc. (Tarpon) purchased substantially all of the assets through its
wholly-owned subsidiary Steelbank Inc (Steelbank), except for the real estate, pursuant to terms
described below (note: 8), of the Haines Road operating location in February 2005. Bolton will
continue to conduct business at its other remaining operating location, Bolton, and accordingly,
carve out financial statements are appropriate for the Haines Road operating location under the
circumstances.  2.
    Basis of Presentation The Haines Road operating locations financial statements are presented in US dollars. The accompanying financial presentation is limited to presenting the financial statements of
the Haines Road operating location of Bolton Steel Tube Co., Ltd. Full financial statements of the Haines Road operating location do not exist and are not
readily and practically available, because Bolton has not historically maintained separate records
of all assets, liabilities and expenses related to Haines Road. However, Boltons financial
information does provide certain details about the Haines Road operation locations prepaid
expenses, inventory, property, plant, and equipment and accrued expenses. Accordingly, it is
impractical to present full financial statements of the Haines Road operating location, because the
preparation of such would require subjective and arbitrary allocations of cash, accounts
receivable, debt and accounts payable, which have not historically been separated by operating
location by Bolton. The accompanying Balance Sheets of Selected Operating Location as at December 31, 2004 and
2003, Statements of Operations and Location Equity of Selected Operating Location and
Statements of Cash Flows of Selected Operating Location for the years ended December 31, 2004, 2003
and 2002, are provided. 105




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued)  3.
    Summary of Significant Accounting Policies Cash Cash balances are not included in the Haines Road operating location Balance Sheets of
Selected Operating Location, because Bolton has historically managed its cash function centrally,
and any allocation to the Haines Road operating location would be subjective and may not accurately
reflect historical financial condition. Cash is not included in the Haines Road operating location
assets purchased by Tarpon. The Haines Road operating location Balance Sheets of Selected
Operating Location includes an intra-company account that shows the cumulative increase or decrease
in cash and cash equivalents since January 1, 2002, so that the accompanying Statements of Cash
Flows show no change from a zero cash balance each year. Boltons aggregate cash and cash equivalents balances were as follows: December 31,2004
    
    
    2003(unaudited)
    
    
    (unaudited)Cash and cash equivalents
    
    $
    2,409
    
    
    $
    1,277
 Cash and cash equivalents include cash on hand and balances with banks. Accounts Receivable Accounts receivable are not included in the Haines Road operating location Balance Sheets of
Selected Operating Location. Although Bolton has tracked sales information by location, it has not
managed accounts receivable separately by location and it has customers that are common to both of
its locations. The determination of accounts receivable balances for the Haines Road operating
location would require detailed analysis of individual customer accounts for three years which
would be impracticable. In addition, Bolton has not operated its cash function by location, making
the application of cash receipts that are not identified by location arbitrary in nature. Accounts
receivable are not included in the Haines Road operating location assets being purchased by Tarpon. Boltons aggregate accounts receivable balances and allowance for doubtful accounts were as
follows: December 31,2004
    
    
    2003(unaudited)
    
    
    (unaudited)Accounts receivable
    
    $
    3,604,220
    
    
    $
    4,074,196Less: Net Allowance for doubtful accounts
    
    
    (151,115
    )
    
    
    (101,501
    )Net accounts receivable
    
    $
    3,453,105
    
    
    $
    3,972,695
 Prepaid Expenses All prepaid expenses such as property taxes, consumable supplies, equipment rental and
insurance are location specific in Boltons financial information and are included in the Haines
Road operating location 106




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued) Balance Sheets of Selected Operating Location as appropriate. Prepaid expenses are included
in the Haines Road operating location assets purchased by Tarpon. Inventories Inventory is included in the Haines Road operating location Balance Sheets of Selected
Operating Location. Bolton has historically maintained a detailed inventory listing by operating
location, related to the specific and distinct products manufactured at each of its Haines Road and
Bolton operating locations. Bolton identified inventory specific to the Haines Road operating
location, and any items which could not be specifically allocated to a location, such as steel
coils, were immaterial in total and allocated on the basis of the relative total other inventory at
the respective Haines Road and Bolton operating locations. Inventory is included in the Haines
Road operating location assets purchased by Tarpon. Inventories are valued at the lower of cost or market value. Cost includes material, labor
and manufacturing overhead. Cost is determined on a first-in, first-out basis. Major classes of
Haines Road operating location inventory consist of the following: December 31,2004
    
    
    2003Raw materials
    
    $
    820,786
    
    
    $
    612,645Work in progress
    
    
    832,404
    
    
    
    560,936Finished goods
    
    
    912,487
    
    
    
    673,191Total
    
    $
    2,565,677
    
    
    $
    1,846,772
 Property, plant, and equipment Property, plant and equipment is included in the Haines Road operating location Balance Sheets
of Selected Operating Location. Bolton has historically maintained in its financial information
separate records for the property, plant and equipment at the Haines Road operating location.
Property, plant and equipment is included in the assets of the Haines Road operating location
purchased by Tarpon. The principal categories of property, plant and equipment are as follows: December 31,2004
    
    
    2003Machinery and equipment
    
    $
    9,101,372
    
    
    $
    8,345,651Furniture and fixtures
    
    
    71,069
    
    
    
    66,138Building / Leasehold improvements
    
    
    2,809,052
    
    
    
    2,608,159Land
    
    
    964,960
    
    
    
    898,018Total
    
    
    12,946,453
    
    
    
    11,917,966Less accumulated depreciation and amortization
    
    
    5,593,541
    
    
    
    4,392,392Net property, plant and equipment
    
    $
    7,352,912
    
    
    $
    7,525,574
 107




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued) Depreciation expense is calculated on the straight-line method, except for depreciation of
vehicles, generally over the following useful lives: Machinery and equipment
    
    10 yearsFurniture and fixtures
    
    10 yearsVehicles
    
    30% declining balanceLeasehold improvements
    
    5 years or life of leaseBuilding
    
    20 years
 Expenditures for repairs and maintenance are charged to operations and major betterments are
capitalized. Accounts Payable Accounts payable are not included in the Haines Road operating location Balance Sheets of
Selected Operating Location. Bolton has not historically managed accounts payable separately by
location and has vendors that are common to both locations. The determination of accounts payable
balances for the Haines Road location would require detailed analysis of individual customer
accounts for the three years which would be impracticable, and the arbitrary allocation of balances
and payments not recorded for a specific location or before it has been used to produce a specific
product. In addition, Bolton has not operated its cash function by location, making the
application of the cash payments that are not allocated by location arbitrary in nature. Accounts
payable were not assumed by Tarpon in the Haines Road operating location assets purchased by
Tarpon. Boltons aggregate accounts payable balances were as follows: December 31,2004
    
    
    2003(unaudited)
    
    
    (unaudited)Accounts payable
    
    $
    6,138,132
    
    
    $
    2,590,245
 Accrued Liabilities All accrued liabilities, such as accrued wages, workers compensation, vacation accrual and
union dues, are location specific in Boltons financial information and are included in the Haines
Road operating location Balance Sheets of Selected Operating Location. Accrued liabilities were
not assumed by Tarpon in the Haines Road operating location assets purchased by Tarpon. 108




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued) Long Term Debt Long-term debt is not included in the Haines Road operating location Balance Sheets of
Selected Operating Location. Bolton has historically managed its treasury function centrally, and
any allocation of debt to a location would be arbitrary and may not accurately reflect historical
results. Such an allocation also would not reflect future results, as debt is not being assumed by
Tarpon in the Haines Road operating location assets being purchased by Tarpon. The Haines Road
operating location Balance Sheets of Selected Operating Location includes an intra-company account,
however, which shows the cumulative increase or decrease in cash and cash equivalents since January
1, 2002, so that the Cash Flows Statements shows no change from a zero cash balance each year. Boltons aggregate long term debt balances were as follows: December 31,2004
    
    
    2003(unaudited)
    
    
    (unaudited)Current
    
    $
    1,120,241
    
    
    $
    811,292Long- term
    
    
    4,399,116
    
    
    
    3,965,666Total
    
    $
    5,519,357
    
    
    $
    4,776,958
 Foreign Currency Translation Assets and liabilities have been translated at exchange rates in effect at the balance sheet
date. Income and expenses are translated at average exchange rates during the period. Exchange
gains or losses resulting from translation are reflected in other comprehensive income. Revenue Recognition Bolton maintains in its financial information detailed sales records concerning the distinct
products manufactured at the Haines Road operating location and accordingly, is able to identify
the relevant sales for each period. For sales of products, services and scrap, revenue is
recognized at the time the product is shipped to customers. Scrap sales are recognized as a reduction in cost of goods sold. Cost of Goods Sold Boltons materials costs have not historically been maintained on a location-specific basis.
However Bolton is able to establish materials costs for known product sales based on detailed
materials purchase invoices and accordingly can identify materials costs allocable to the Haines
Road operating location. Utility expenses have historically been billed specifically to Haines
Road and are identifiable. Separate records have been maintained for direct and indirect labor
costs and the associated employee benefits at the Haines Road operating location, as well as for
packaging expenses. Delivery Delivery expenses for delivery of finished products have not been maintained by Bolton on a
location basis. Bolton has allocated freight expenses to the Haines Road operating location using
a ratio of location sales to total sales. 109




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued) Rent Rent expense on equipment is specifically identifiable for the Haines Road operating location. Depreciation As separate fixed asset records have been maintained at the Haines Road operating location,
depreciation expense is specifically identifiable. Selling Expense Boltons selling expenses have not historically been accounted for on a location-specific
basis. Bolton has allocated total selling expenses, including advertising, sales salaries and
commissions, travel and entertainment costs to the Haines Road operating location, using a ratio of
location sales to total sales. Administration Expense Boltons administrative expenses have not historically been accounted for on a
location-specific basis. The most significant element of administrative expenses is the allocation
of executive payroll expense, which has been allocated, based on an estimate of time incurred on
the Haines Road operations by members of the executive management of Bolton, and the related
benefit expense, which has been allocated based on the allocated executive payroll expense.
Depreciation, repairs and maintenance, real estate and business taxes and some consulting and legal
fees are location specific. Bad debt expense and supplies have been allocated using a ratio of
location sales to total sales. The remaining administrative expenses, such as capital taxes,
directors and officers and other insurance, telephone expenses and general audit, legal and
consulting fees have been split evenly between Boltons two operating locations. Interest Expense and Finance Cost Interest expense and financing costs have not historically been accounted for by Bolton on a
location-specific basis. Boltons line of credit interest expense has been allocated using a ratio
of the Haines Road operating locations sales to total sales. Portions of Boltons long-term debt
were used to purchase specific assets, and interest expense related to that indebtedness has been
allocated on the basis of initial advances based upon relative appraised values of the assets. 110




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued) Income Taxes The Haines Road operating location has included a provision for Canadian federal and
provincial taxes based on a separate return method at statutory rates. Deferred income taxes are
provided for timing differences between financial statement income and tax return income under the
provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes,
which requires deferred income taxes to be computed on the asset and liability method and deferred
tax assets are recognized only when realization is certain. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. The principal timing difference arises from the
use of accelerated depreciation for tax purposes. Use of Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these estimates. Reclassifications Certain amounts from prior periods have been reclassified to conform to the current
presentation. 111




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued)  4.
    Intra-Company Debt / Receivable Bolton maintains a pooled cash account for both of its operating locations. All cash
transactions and any non-cash transactions are recorded through the intra-company account. At the
Balance Sheet of Selected Operating Location date, the balance of the intra-company account
represents non-interest bearing advances. In addition, Bolton has obtained a line of credit from a
bank, which is not allocated to the Haines Road operating location. The intra-company receivable
on the balance sheet represents the excess or deficiency in cash flows from the Haines Road
operating location. Shown below is the outstanding balance and terms on the bank line of credit
for Bolton as a company. Although not specifically allocated by location, the cash flow from these
loans may have been utilized to fund the operations of the Haines Road operating location. Bolton had an operating line of credit of $15,000,000 (Canadian) available at an interest rate
of prime plus 0.75% for the year ended December 31, 2003. In March 2004, the operating
line of credit available was reduced to $10,000,000 (Canadian) at an interest rate of prime plus
0.75%. The following are the amounts used of the line of credit available and used by Bolton at the
period end date: December 31,2004
    
    
    2003(unaudited)
    
    
    (unaudited)Available
    
    $
    8,303,000
    
    
    $
    11,590,500Used
    
    $
    5,975,115
    
    
    $
    5,250,589
 As security for the line of credit, Bolton has provided a first priority security interest in all
existing and future property, including receivables, inventories, equipment, contract rights and
general intangibles, as well as a first charge mortgage on land and buildings. In addition,
personal guarantees are provided by the shareholders of Bolton.  5.
    Income Taxes A reconciliation of actual federal income tax expense to the expected amounts computed by
applying the statutory tax rate percent to earnings before income taxes is as follows: December 31,2004
    
    
    2003
    



    

2002Net income (loss) before income taxes
    
    $
    1,164,825
    
    
    $
    (162,684
    )

    $
    1,498,557Federal and provincial statutory rate
    
    
    34
    %
    
    
    34
    %

    
    34
    %Tax computed at federal statutory rate
    
    
    396,041
    
    
    
    (55,313
    )
    
    
    509,509Increase or decrease in taxes from:Other (net)
    
    
    5,450
    
    
    
    8,947
    
    

    
    (18,322
    )Reported income tax
    
    $
    401,491
    
    
    $
    (46,366
    )
    
$
    491,187
 Deferred tax liabilities consist of the following: December 31,2004
    
    
    2003Property and Equipment
    
    $
    798,064
    
    
    $
    732,599
 112




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HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued)  6.
    Related party transactions The Haines Road operating location performed slitting services at no charge to Boltons Bolton
operating location, and vice versa. The net value of services performed by the Haines Road
operating location over services received from Boltons Bolton operating location was treated as a
reduction of the Haines Road operating locations direct labour cost in the accompanying Statements
of Operations and Location Equity, as follows: December 31,2004
    
    
    2003
    
    
    2002Reductions in direct labour
    
    $
    117,658
    
    
    $
    49,106
    
    
    $
    38,074
 The Haines Road operating location also performed slitting services for Excess Steel, Inc. (ESI),
a company owned by the daughter of one of Boltons owners. Revenue from these services is
recognized when the slit coil is shipped to ESI, and generally equals Haines Roads direct cost of
providing this service. Revenues from ESI were as follows: December 31,2004
    
    
    2003
    
    
    2002Reductions in direct labour ESI
    
    $
    
    
    
    $
    19,297
    
    
    $
    38,167
  7.
    Commitments and Contingencies The Haines Road operating location has operating leases for equipment and vehicles expiring at
various dates to 2006. The following are the minimum lease payments under non-cancelable leases at
December 31, 2004: Year Ended December 31,2005
    
    $
    11,0402006
    
    $
    5,325Total
    
    $
    16,365
 113




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##### Table of Contents



HAINES ROAD OPERATING LOCATION of BOLTON STEEL TUBE CO., LTD.
NOTES TO FINANCIAL STATEMENTS (continued)  8.
    Sale to Tarpon Industries In
February 2005, substantially all of the assets, other than the real
estate of the Haines Road Operating Location of Bolton Steel Tube
Co., Ltd., were purchased by Steelbank, Inc., a subsidiary of Tarpon
Industries, Inc. 114




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##### Table of Contents



PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma financial data should be read in conjunction with the
historical financial statements of Tarpon, EWCO and Haines Road, including the notes to those
statements, appearing elsewhere in this report. The unaudited pro forma combined information is
presented for illustrative purposes only and is not necessarily indicative of the results of
operations or financial position that would have occurred if the transactions had actually been
completed at the dates indicated, nor is it necessarily indicative of future results of operations
or financial position of the combined company. The unaudited pro forma combined balance sheet has been prepared to reflect the acquisition by
Tarpon of Haines Road as if the acquisition had occurred as of December 31, 2004. The unaudited pro forma combined statement of operations for the year ended December 31, 2004
has been prepared to reflect the acquisitions of EWCO and Haines Road as if those acquisitions had
occurred at January 1, 2004, by combining the separate historical statements of operations of
Tarpon and Haines Road for the year ended December 31, 2004 and of EWCO for the three months ended
March 31, 2004, as EWCOs results of operations were not included in Tarpons financial statements
until April 1, 2004. The pro forma combined statement of operations excludes financial information
relating to Steelbank prior to the date of acquisition. These pro forma combined statements are also adjusted to reflect (a) our issuance of the
promissory notes issued in the 2004 note financing and the related warrants to purchase 565,000
common shares, with an estimated value of approximately $652,000, as if they were issued at the
same time as the acquisitions and any related remaining deferred interest expense were expensed,
(b) our sale of the 3,277,500 common shares offered by us in our initial public offering at the
public offering price of $5.00 per share as if it had occurred at the same time as the acquisitions
and we had used the estimated net proceeds to pay promissory notes and cash due in connection with
the acquisitions of EWCO, Haines Road and Steelbank and to pay our 2004 note financing, (c)
$5,318,363 in mortgage, equipment and revolving credit financing, although we currently have no
commitment for the mortgage financing, and the use of the proceeds of that financing to pay a
portion of the Haines Road purchase price, and (d) our issuance of (1) 70,262 common shares isssued
in February 2005 to purchasers of our common shares in December 2002 to October 2003 to reduce
their effective purchase price to approximately $3.70 a share, (2) 60,636 common shares as part of
Steelbanks purchase price, and (3) 2,000 common shares to one of our directors for past services.
For a discussion of the adjustments made in presenting such pro forma financial data, see the
accompanying Notes to Pro Forma Financial Statements included in this report. In February 2005, Steelbank consummated the acquisition of substantially all of the assets,
other than the real estate, of Haines Road from Bolton Steel Tube Co., Ltd. pursuant to an Asset
Purchase Agreement originally entered into in July 2004, as amended. The purchase price was
approximately $10,008,000 U.S. dollars, consisting of (1) approximately $290,000 in deposits paid
before closing, (2) approximately $7,402,000, including an estimated $526,000 in closing
adjustments, paid in cash at the closing of the acquisition, (3) approximately $979,000 115




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##### Table of Contents



secured, subordinated promissory note, payable 15 months after closing or by offset against
amounts owed for purchases by Bolton from Haines Road after closing, (4) approximately $1,005,000
for purchased inventory, payable within 45 days after the closing of the acquisition, (5) $200,000
success fee in connection with the transaction, payable to Bainbridge Advisors over 24 months, and
(6) approximately $131,400 in expenses related to the transaction. Steelbank funded a portion of
the purchase price with proceeds of loans described below. Pursuant to a Guarantee between Tarpon and Bolton, Tarpon guaranteed Steelbanks obligations
under the secured subordinated promissory note executed by Steelbank in favor of Bolton. As part
of the transaction, we have agreed not to compete with Bolton with respect to hot-dipped galvanized
products for a period of six months after closing. Steelbank has also agreed to acquire the Haines Road real estate for an estimated aggregate of
$4,651,000 U.S. dollars, consisting of (1) approximately $3,427,000 for the cash portion of the
purchase price of the Haines Road real estate, with approximately $163,000 paid as a deposit and
the balance payable within 90 days after the closing of the acquisition, and (2) approximately
$1,224,000 secured promissory note, payable 15 months after real estate closing date or, if the
fair value of the purchased real estate less the loans secured by the purchased real estate is not
at least $408,000 or if the first mortgage on the purchased real estate exceeds $3,019,000, payable
on the real estate closing date. Steelbank expects to seek $3,019,000 in mortgage financing,
although it currently has no commitment for the mortgage financing. Steelbank has also agreed to
lease the Haines Road real estate during the period between the acquisition closing date and the
real estate closing date at a monthly rent of approximately $62,300. If we are unable to obtain the assumed mortgage financing for the Haines Road real estate, we
would not be able to acquire the land or building described in Note A of the notes to the pro forma
financial statements. We would not pay the portions of the purchase price or incur the indebtedness
describe in Notes C and D of the notes to pro forma financial statements, and our Haines Road
business might have to discontinue its operations for a significant time while it relocates or be
subject to onerous lease terms, if a lease is even available, and we would be liable for breaching
our purchase agreement. See Risk Factors in Item 1 of this report. See Business  Operations in Item 1 of this Report for a description of our acquisitions of
EWCO Steelbank and Haines Road. The acquisitions of EWCO and Steelbank have been accounted for,
and the acquisition of Haines Road will be accounted for, using the purchase method of accounting
and, accordingly, their assets, liabilities and results of their results of operations will be
included in Tarpons consolidated financial statements after the acquisition date. The unaudited
pro forma combined financial statements include adjustments, which are based on preliminary
estimates, to reflect the allocation of the purchase price to the acquired assets and assumed
liabilities of Haines Road. The preliminary purchase price allocation is subject to revision as
more detailed analysis is completed and additional information on fair values of assets and
liabilities becomes available. Any change in fair value of the new assets will change the amount
of the purchase price allocable to goodwill. The pro forma adjustments related to the purchase
price allocation of the acquisition represent managements best estimate of the effect of this
transaction. The final purchase accounting adjustments, however, may differ materially from the
pro forma adjustments. 116




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##### Table of Contents



PRO FORMA TARPON INDUSTRIES INC. PRO FORMA BALANCE
SHEET
Pro Forma as of December 31, 2004 (unaudited) TarponIndustries,
    
    
    Offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Haines RoadInc.
    
    
    Adjustments
    
    
    Ref.
    
    
    Sub-Total
    
    
    Haines Road
    
    
    Adjustments
    
    
    Ref.
    
    
    TotalASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    257,786
    
    
    $
    10,681,858
    
    
    
    1-4,6,9
    
    
    $
    10,939,644
    
    
    $
    
    
    
    $
    (6,624,245
    )
    
    
    A-C,E,F
    
    
    $
    4,315,399Intra-company receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,305,700
    
    
    
    (3,305,700
    )
    
    
    A
    
    
    
    Accounts receivable
    
    
    8,327,708
    
    
    
    
    
    
    
    
    
    
    
    8,327,708
    
    
    
    
    
    
    
    
    
    
    
    G
    
    
    
    8,327,708Inventories
    
    
    7,604,384
    
    
    
    
    
    
    
    
    
    
    
    7,604,384
    
    
    
    2,565,677
    
    
    
    (1,560,431
    )
    
    
    A
    
    
    
    8,609,630Prepaid expenses/financing costs
    
    
    569,040
    
    
    
    


    
    
    
    
    
    
    
    569,040
    
    
    
    297,538
    
    
    
    145,427
    
    
    
    A
    
    
    
    1,012,005Prepaid IPO expenses
    
    
    2,076,468
    
    
    
    (2,076,468
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deposits
    
    
    265,116
    
    
    
    

    
    
    
    
    
    
    
    265,116
    
    
    
    
    
    
    
    (265,116
    )
    
    
    B
    
    
    
    Income taxes receivable
    
    
    52,552
    
    
    
    

    
    
    
    
    
    
    
    52,552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,552Deferred tax asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    A
    
    
    
    Capitalized acquisition costs
    
    
    131,428
    
    
    
    
    
    
    
    
    
    
    
    131,428
    
    
    
    
    
    
    
    (131,428
    )
    
    
    
    
    
    
    Total current assets
    
    
    19,284,482
    
    
    
    8,605,390
    
    
    
    
    
    
    
    27,889,872
    
    
    
    6,168,915
    
    
    
    (11,741,493
    )
    
    
    
    
    
    
    22,317,294PROPERTY, PLANT AND EQUIPMENT:Machinery and equipment
    
    
    394,554
    
    
    
    

    
    
    
    
    
    
    
    394,554
    
    
    
    9,101,372
    
    
    
    (4,024,423
    )
    
    
    A
    
    
    
    5,471,503Building and leasehold
improvements
    
    
    211,622
    
    
    

    
    
    
    
    
    
    
    
    211,622
    
    
    
    2,809,052
    
    
    
    (464,652
    )
    
    
    A
    
    
    
    2,556,022Computer equipment
    
    
    32,710
    
    
    
    
    
    
    
    
    
    
    
    32,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,710Transportation equipment
    
    
    24,500
    
    
    
    
    
    
    
    
    
    
    
    24,500
    
    
    
    
    
    
    
    33,514
    
    
    
    A
    
    
    
    58,014Furniture and fixtures
    
    
    77,090
    
    
    
    
    
    
    
    
    
    
    
    77,090
    
    
    
    71,069
    
    
    
    (28,113
    )
    
    
    A
    
    
    
    120,046Land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    964,960
    
    
    
    1,537,813
    
    
    
    A
    
    
    
    2,502,773Total
    
    
    740,476
    
    
    

    
    
    
    
    
    
    
    740,476
    
    
    
    12,946,453
    
    
    
    (2,945,861
    )
    
    
    
    
    
    
    10,741,068Less accumulated depreciation
and amortization
    
    
    (105,425
    )
    
    


    
    
    
    
    
    

    
    (105,425
    )
    
    
    (5,593,541
    )
    
    
    5,593,541
    
    
    
    A
    
    
    
    (105,425
    )Net property and equipment
    
    
    635,051
    
    
    
    
    
    
    
    
    
    
    
    635,051
    
    
    
    7,352,912
    
    
    
    2,647,680
    
    
    
    
    
    
    
    10,635,643OTHER ASSETS:Deferred financing costs
    
    
    71,812
    
    
    

    
    
    
    
    
    
    
    71,812
    
    
    
    
    
    
    


    
    
    
    
    
    
    
    71,812Goodwill
    
    
    1,279,810
    
    
    


    
    
    
    
    
    
    
    1,279,810
    
    
    
    2,009,759
    
    
    


    
    
    
    A
    
    
    
    3,289,569Intangibles, net of accumulated
amortization
    
    
    436,638
    
    

    
    

    
    
    
    
    
    
    
    436,638
    
    
    
    1,200,000
    
    
    
    

    
    
    
    
    
    
    
    1,636,638Total other assets
    
    
    1,788,260
    
    
    
    
    
    
    
    
    
    
    
    1,788,260
    
    
    
    3,209,759
    
    
    
    
    
    
    
    
    
    
    
    4,998,019TOTAL ASSETS
    
    $
    21,707,793
    
    
    $
    8,605,390
    
    
    
    
    
    
    $
    30,313,183
    
    
    $
    16,731,586
    
    
    $
    (9,093,813
    )
    
    
    
    
    
    $
    37,950,956LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Notes payable  bank
    
    $
    6,711,387
    
    
 $


    
    
    
    
    
    
    $
    6,711,387
    
    

$

   
    
    
    $
    502,623
    
    
    
    F
    
    
    $
    7,214,010Notes payable  other
    
    
    2,606,319
    
    
    
    (1,123,025
    )
    
    
    3,9
    
    
    
    1,483,294
    
    
    
    
    
    
    
    979,080
    
    
    
    B
    
    
    
    2,462,374Accounts payable  trade
    
    
    8,345,395
    
    
    
    (10,000
    )
    
    
    10
    
    
    
    8,335,395
    
    
    
    
    
    
    
    
    
    
    
    G
    
    
    
    8,335,3952004 note financing loan payable
    
    
    2,150,000
    
    
    
    (2,150,000
    )
    
    
    6Accrued expenses
    
    
    781,222
    
    
    
    (170,335
    )
    
    
    4,6,9
    
    
    
    610,887
    
    
    
    131,160
    
    
    
    (131,160
    )
    
    
    A
    
    
    
    610,887Income taxes payable
    
    
    135,712
    
    
    




    
    
    
    
    
    
    
    135,712
    
    
    
    456,901
    
    
    
    (456,901
    )
    
    
    A
    
    
    
    135,712Success fees
    
    
    233,333
    
    
    
    100,000
    
    
    
    7
    
    
    
    333,333
    
    
    
    
    
    
    
    100,000
    
    
    
    A
    
    
    
    433,333Current maturities on long-term debt
    
    
    405,107
    
    
    


    
    
    
    
    
    
    
    405,107
    
    
    
    
    
    
    
    334,579
    
    
    
    C,E
    
    
    
    739,686Total current liabilities
    
    
    21,368,475
    
    
    
    (3,353,360
    )
    
    
    
    
    
    
    18,015,115
    
    
    
    588,061
    
    
    
    1,328,221
    
    
    
    
    
    
    
    19,931,397NON-CURRENT LIABILITIES:Long-term debt, less current
maturities
    
    
    1,314,218
    
    
    

    
    
    
    
    
    
    
    1,314,218
    
    
    
    
    
    
    
    5,621,491
    
    
    
    C,E
    
    
    
    6,935,709Long-term accrued liabilities
    
    
    64,286
    
    
    



    
    
    
    
    
    
    
    64,286
    
    
    
    
    
    
    


    
    
    
    
    
    
    
    64,286Long-term success fee, less current
maturities
    
    
    
    
    
    
    (100,000
    )
    
    
    7
    
    
    
    (100,000
    )
    
    
    
    
    
    
    100,000
    
    
    
    A
    
    
    
    Deferred tax liability
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    798,064
    
    
    
    (798,064
    )
    
    
    A
    
    
    
    Total non-current liabilities
    
    
    1,378,504
    
    
    
    (100,000
    )
    
    
    
    
    
    
    1,278,504
    
    
    
    798,064
    
    
    
    4,923,427
    
    
    
    
    
    
    
    6,999,995SHAREHOLDERS EQUITY:Common shares
    
    
    1,479,369
    
    
    
    12,058,750
    
    
    
    1,2,10
    
    
    
    13,538,119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,538,119Additional paid-in capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


    
    
    
    
    
    
    
    Warrants
    
    
    651,583
    
    
    
    423,913
    
    
    
    5
    
    
    
    1,075,496
    
    
    
    
    
    
    


    
    
    
    
    
    
    
    1,075,496Retained earnings
    
    
    (3,411,380
    )
    
    
    (423,913
    )
    
    
    5
    
    
    
    (3,835,293
    )
    
    
    12,934,573
    
    
    
    (12,934,573
    )
    
    
    A
    
    
    
    (3,835,293
    )Accumulated deficit
Foreign currency translation
    
    
    241,242
    
    
    

    
    
    
    
    
    
    
    241,242
    
    
    
    2,410,888
    
    
    
    (2,410,888
    )
    
    
    A
    
    
    
    241,242Total shareholders equity
(deficit)
    
    
    (1,039,186
    )
    
    
    12,058,750
    
    
    
    
    
    
    
    11,019,564
    
    
    
    15,345,461
    
    
    
    (15,345,461
    )
    
    
    
    
    
    
    11,019,564TOTAL LIABILITIES AND EQUITY (DEFICIT)
    
    $
    21,707,793
    
    
    $
    8,605,390
    
    
    
    
    
    
    $
    30,313,183
    
    
    $
    16,731,586
    
    
    $
    (9,093,813
    )
    
    
    
    
    
    $
    37,950,956
 The accompanying notes are an integral part of these financial statements 117




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##### Table of Contents



PRO FORMA TARPON INDUSTRIES INC. 
 PRO FORMA STATEMENT OF OPERATIONS Pro
Forma For the Year Ended December 31, 2004 (unaudited)Pre-acq.
    
    
    EWCO
    
    
    
    
    
    
    Sub-
    
    
    Offering
    
    
    
    
    
    
    Sub-
    
    
    
    
    
    
    HainesTarpon
    
    
    EWCO
    
    
    Adjust
    
    
    Ref.
    
    
    Total
    
    
    Adjust
    
    
    Ref.
    
    
    Total
    
    
    Haines
    
    
    Adjust
    
    
    Ref.
    
    
    Total(unaudited)NET REVENUES
    
    $
    37,621,629
    
    
    $
    10,548,781
    
    
    $
    0
    
    
    
    
    
    
    $
    48,170,410
    
    
    $
    0
    
    
    
    
    
    
    $
    48,170,410
    
    
    $
    15,396,719
    
    
    $
    (365,306
    )
    
    
    G
    
    
    $
    63,201,823COST OF SALES
    
    
    33,872,110
    
    
    
    9,137,008
    
    
    
    0
    
    
    
    
    
    
    
    43,009,118
    
    
    
    0
    
    
    
    
    
    
    
    43,009,118
    
    
    
    12,483,898
    
    
    
    (360,789
    )
    
    
    A,G
    
    
    
    55,132,227Gross profit
    
    
    3,749,519
    
    
    
    1,411,773
    
    
    
    0
    
    
    
    
    
    
    
    5,161,292
    
    
    
    0
    
    
    
    
    
    
    
    5,161,292
    
    
    
    2,912,821
    
    
    
    (4,517
    )
    
    
    
    
    
    
    8,069,596OPERATING EXPENSES:Selling, general and
administrative expenses
    
    
    3,976,435
    
    
    
    814,027
    
    
    
    0
    
    
    
    
    
    
    
    4,790,462
    
    
    
    423,913
    
    
    
    5
    
    
    
    5,214,375
    
    
    
    1,123,914
    
    
    
    0
    
    
    
    
    
    
    
    6,338,289Loss on disposal of property
and equipment
    
    
    11,392
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    11,392
    
    
    
    0
    
    
    
    
    
    
    
    11,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,392Depreciation
and amortization
    
    
    140,989
    
    
    
    35,445
    
    
    
    13,000
    
    
    II
    
    
    189,434
    
    
    
    0
    
    
    
    
    
    
    
    189,434
    
    
    
    30,403
    
    
    
    74,713
    
    
    
    A,J
    
    
    
    294,550Total operating expenses
    
    
    4,128,816
    
    
    
    849,472
    
    
    
    13,000
    
    
    
    
    
    
    
    4,991,288
    
    
    
    423,913
    
    
    
    
    
    
    
    5,415,201
    
    
    
    1,154,317
    
    
    
    74,713
    
    
    
    
    
    
    
    6,644,231OPERATING INCOME (LOSS)
BEFORE OTHER INCOME/
(EXPENSE):
    
    
    (379,297
    )
    
    
    562,301
    
    
    
    (13,000
    )
    
    
    
    
    
    
    170,004
    
    
    
    (423,913
    )
    
    
    
    
    
    
    (253,909
    )
    
    
    1,758,504
    
    
    
    (79,230
    )
    
    
    
    
    
    
    1,425,365OTHER INCOME/(EXPENSE):Miscellaneous income
    
    
    (8,009
    )
    
    
    (14,549
    )
    
    
    0
    
    
    
    
    
    
    
    (22,558
    )
    
    
    0
    
    
    
    
    
    
    
    (22,558
    )
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    (22,558
    )Interest expense, net
    
    
    (1,237,020
    )
    
    
    (51,390
    )
    
    
    0
    
    
    
    
    
    
    
    (1,288,410
    )
    
    
    849,499
    
    
    
    4,6,8&9
    
    
    
    (438,911
    )
    
    
    (593,679
    )
    
    
    64,330
    
    
    
    B-F, I
    
    
    
    (968,260
    )Deferred financing costs
    
    
    (447,681
    )
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    (447,681
    )
    
    
    354,193
    
    
    
    8
    
    
    
    (93,488
    )
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    (93,488
    )Foreign exchange
    
    
    6,507
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    6,507
    
    
    
    0
    
    
    
    
    
    
    
    6,507
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    6,507Total other income (expense)
    
    
    (1,686,203
    )
    
    
    (65,939
    )
    
    
    0
    
    
    
    
    
    
    
    (1,752,142
    )
    
    
    1,203,692
    
    
    
    
    
    
    
    (548,450
    )
    
    
    (593,679
    )
    
    
    64,330
    
    
    
    
    
    
    
    (1,077,799
    )NET INCOME
(LOSS) BEFORE
INCOME TAXES
    
    
    (2,065,500
    )
    
    
    496,362
    
    
    
    (13,000
    )
    
    
    
    
    
    
    (1,582,138
    )
    
    
    779,779
    
    
    
    
    
    
    
    (802,359
    )
    
    
    1,164,825
    
    
    
    (14,900
    )
    
    
    
    
    
    
    347,566INCOME TAXES
(RECOVERABLE)
    
    
    (70,986
    )
    
    
    116,013
    
    
    
    (116,013
    )
    
    
    I
    
    
    
    (70,986
    )
    
    
    0
    
    
    
    
    
    
    
    (70,986
    )
    
    
    401,491
    
    
    
    (5,811
    )
    
    
    H
    
    
    
    324,694NET INCOME (LOSS)
    
    $
    (1,994,514
    )
    
    $
    380,349
    
    
    $
    103,013
    
    
    
    
    
    
    $
    (1,511,152
    )
    
    $
    779,779
    
    
    
    
    
    
    $
    (731,373
    )
    
    $
    763,334
    
    
    $
    (9,089
    )
    
    
    
    
    
    $
    22,872NET INCOME
(LOSS) PER
COMMON SHARE 
BASIC AND DILUTED
    
    $
    (1.63
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
    
    
    1,227,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,637,698
 The accompanying notes are an integral part of these financial statements 118




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PRO FORMA TARPON INDUSTRIES INC. NOTES TO PRO FORMA FINANCIAL STATEMENTS  1.
    CashThe cash adjustments are as follows: Offering
    
    
    See NotePublic Offering Cash
    
    $
    16,387,500
    
    
    
    1Public Offering Expenses
    
    
    (2,262,282
    )
    
    
    2Payment of Steelbank Note
    
    
    (453,025
    )
    
    
    3Payment of Accrued Interest on Steelbank Note
    
    
    (2,079
    )
    
    
    4Payment of 2004 Note Financing and Accrued Interest
    
    
    (2,278,056
    )
    
    
    6Payment of EWCO Note and Accrued Interest
    
    
    (710,200
    )
    
    
    9TOTAL OFFERING
    
    $
    10,681,858
 Acquisition
    
    
    See NoteAdditional Equipment and Spare Parts Price
    
    
    ($574,356
    )
    
    
    AFirst Amending Agreement Expenses
    
    
    (171,981
    )
    
    
    AHaines Road penalty for closing after 9/15/04
    
    
    (187,948
    )
    
    
    AHaines Road Software Licenses
    
    
    (20,398
    )
    
    
    ACash Portion of Haines Road Purchase
    
    
    (6,447,081
    )
    
    
    BCash Portion of Haines Road Real Estate Purchase
    
    
    (407,950
    )
    
    
    CHaines Road Inventory Purchase
    
    
    (1,005,246
    )
    
    
    AHaines Road Equipment Financing
    
    
    1,713,390
    
    
    
    EHaines Road Inventory Financing
    
    
    502,623
    
    
    
    FExchange Gain on Deposits
    
    
    (25,298
    )
    
    
    BTOTAL ACQUISITION
    
    
    ($6,624,245
    )
  2.
    Prepaid/Deferred ExpensesThe prepaid/deferred expense adjustments are as follows: Offering
    
    
    See NotePrepaid Offering Expenses
    
    
    ($2,076,468
    )
    
    
    2TOTAL OFFERING
    
    
    ($2,076,468
    )
  3.
    Notes Payable  OtherThe notes payable  other adjustments are as follows: Offering
    
    
    See NoteSteelbank Note Payment
    
    
    ($453,025
    )
    
    
    3EWCO Note Payment
    
    
    (670,000
    )
    
    
    9TOTAL OFFERING
    
    
    ($1,123,025
    )
 119




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PRO FORMA TARPON INDUSTRIES INC.  4.
    Accounts Payable  TradeThe accounts payable-trade adjustments are as follows: Offering
    
    
    See NotePayment for Consulting with Stock
    
    
    ($10,000
    )
    
    
    10
  5.
    Bridge Loan PayableThe bridge loan payable adjustments are as follows: Offering
    
    
    See NotePayment of Bridge Loan
    
    
    ($2,150,000
    )
    
    
    6
  6.
    Accrued ExpensesThe accrued expenses adjustments are as follows: Offering
    
    
    See NoteSteelbank Note Accrued Interest Payment
    
    
    ($2,079
    )
    
    
    42004 Note Financing Accrued Interest Payment
    
    
    (128,056
    )
    
    
    6EWCO Note Accrued Interest Payment
    
    
    (40,200
    )
    
    
    9TOTAL OFFERING
    
    
    ($170,335
    )
  7.
    Current and Long-Term Success FeeThe current and long-term success fee adjustments are as follows: Offering
    
    
    See NoteReamortization of Bainbridge success fee to long-term
    
    $
    100,000
    
    
    
    7Reamortization of Bainbridge success fee from current
    
    
    (100,000
    )
    
    
    7TOTAL OFFERING
    
    
    ($--
    )
  8.
    Current Portion of Long-Term DebtThe current portion of long-term debt adjustments are as follows: Acquisition
    
    
    See NoteCurrent Portion of Haines Road Mortgage
    
    $
    25,218
    
    
    
    CCurrent Portion of Haines Road Equipment Loan
    
    
    309,361
    
    
    
    ETOTAL ACQUISITION
    
    $
    334,579
 120




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PRO FORMA TARPON INDUSTRIES INC.  9.
    Long-Term DebtThe long-term debt adjustments are as follows: Acquisition
    
    
    See NoteHaines Road Real Estate Note
    
    $
    1,223,850
    
    
    
    CHaines Road Real Estate Mortgage  Long Term
    
    
    2,993,612
    
    
    
    CHaines Road Equipment Loan  Long Term
    
    
    1,404,029
    
    
    
    ETOTAL ACQUISITION
    
    $
    5,621,491
  10.
    Common SharesThe common shares adjustments are as follows: Offering
    
    
    See NoteOffering Proceeds
    
    $
    16,387,500
    
    
    
    1Underwriting Discount and Offering Expenses
    
    
    (4,338,750
    )
    
    
    2Payment for Consulting with Stock
    
    
    10,000
    
    
    
    10TOTAL OFFERING
    
    $
    12,058,750
  11.
    Retained EarningsThe retained earnings adjustments are as follows: Offering
    
    
    See NoteNon-Employee Option Grants at Closing
    
    
    ($423,913
    )
    
    
    5
 Acquisition
    
    
    See NoteRemove Haines Roads Retained Earnings
    
    
    ($12,934,573
    )
    
    
    A
  12.
    Cost of SalesThe cost of sales adjustments are as follows: Acquisition
    
    
    See NoteRemove Haines Road Actual Depreciation
    
    
    ($718,818
    )
    
    
    AAdd Haines Road Fair Value Depreciation
    
    
    809,267
    
    
    
    ARemove Cost
of Inter-company Sales
    
    
    (365,306
    )
    
    
    GReserve
Haines Road Inventory Purchase Accounting
    
    
    (85,932
    )
    
    
    KTOTAL ACQUISITION
    
    $
    (360,789
    )
 121




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PRO FORMA TARPON INDUSTRIES INC.  13.
    Depreciation and AmortizationThe depreciation and amortization adjustments are as follows: Acquisition
    
    
    See NoteRemove Haines Road Actual Depreciation
    
    $
    (30,403
    )
    
    
    AAdd Haines Road Fair Value Depreciation
    
    
    25,116
    
    
    
    AAdd
Intangible Asset Amortization
    
    
    80,000
    
    
    
    JTOTAL ACQUISITION
    
    $
    74,713
  14.
    Interest ExpenseThe interest expense adjustments are as follows: Offering
    
    
    See NoteRemove Steelbank Short Note Interest
    
    $
    29,660
    
    
    
    4Remove 2004 Note Financing Interest
    
    
    128,056
    
    
    
    6Remove 2004 Note Financing Warrant Amortization
    
    
    651,583
    
    
    
    8Remove EWCO Note Interest
    
    
    40,200
    
    
    
    9TOTAL OFFERING
    
    $
    849,499
 Acquisition
    
    
    See NoteHaines Road Assets Seller Note Interest
    
    $
    (79,709
    )
    
    
    BHaines Road Realty Seller Note Interest
    
    
    (99,636
    )
    
    
    CHaines Road Realty Mortgage Interest
    
    
    (244,841
    )
    
    
    DHaines Road Equipment Loan Interest
    
    
    (80,032
    )
    
    
    EHaines Road Inventory Revolver Interest
    
    
    (25,131
    )
    
    
    FRemove 2004 Interest Expense
    
    
    593,679
    
    
    
    ITOTAL ACQUISITION
    
    
    $64,330
 OFFERING ADJUSTMENTS  1.
    Public Offering Cash This adjustment reflects the sale by Tarpon of 3,277,500 common shares in its initial public
offering at $5.00 a share and increases cash and common shares by $16,387,500. 122




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PRO FORMA TARPON INDUSTRIES INC.  2.
    Public Offering Expenses This adjustment reduces the proceeds of the initial public offering by the estimated
underwriting commissions, discounts and expenses of approximately $1,638,750 and the estimated
expenses of the offering of $2,700,000. The expenses of $4,338,750 are allocated $2,076,468
against prepaid offering expenses and $2,262,282 against cash.  3.
    Steelbank Promissory Note Payment This adjustment assumes we pay the approximately $453,025 balance of the note issued in
connection with our acquisition of Steelbank out of the proceeds of Tarpons initial public
offering of its common shares.  4.
    Steelbank Acquisition Debt Interest Payment This adjustment assumes payment of the interest accrued relating to the note (described in
Note 3) issued in connection with our acquisition of Steelbank, because, as described in Note 3 we
assume it is paid out of the proceeds of Tarpons initial public offering of its common shares. Interest accrued under this note is $2,079 and is removed from accrued expenses and cash for
the December 31, 2004. Interest expense of $29,660 on this note is removed from the pro forma
income statement as the note is assumed paid out of the offering proceeds at January 1 ,2004.  5.
    Non-Employee Stock Option Grants This adjustment recognizes the expenses of options that have been granted to non-employees
effective as of the closing of Tarpons initial public offering of common shares, consisting of
ten-year, immediately exercisable options to purchase 140,000 common shares at 110% of our initial
public offering price. As a result, retained earnings as of December 31, 2004 is reduced by
$423,913 and additional paid in capital is increased by the same amount. Expense of $423,913 is
added to the pro forma income statement.  6.
    Payment of 2004 Note Financing With Offering Proceeds and Removal of Related Interest This adjustment assumes we repay our $2,150,000 in 2004 note financing notes and accrued
interest with the proceeds of Tarpons initial public offering of its common shares, and removes
the $128,056 in related accrued interest and interest expense on those notes. The notes bear
interest at an annual rate of 8%, 15% after January 5, 2005. 123




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PRO FORMA TARPON INDUSTRIES INC.  7.
    Reamortization of Bainbridge Fees We owe Bainbridge a success fee of $200,000 in connection with the consummation of the
acquisitions of EWCO, Steelbank, and Haines Road. The pro forma balance sheet has been adjusted to
re-amortize the payments assumed to be outstanding at December 31, 2004 to reflect payment over 24
months, rather than 18 months, resulting in $300,000 of short-term obligation and $300,000 of
long-term obligation.  8.
    Warrant Amortization and Placement Agent Fee Interest amortization relating to warrants issued in connection with our 2004 note financing
and amortization of the placement agent fee of $651,583 and $354,193, respectively, are removed
from the income statement as the related notes are assumed paid as of January 1, 2004.  9.
    Payment of EWCO Note With Offering Proceeds and Removal of Related Interest. This adjustment assumes we pay the balance of the $670,000 note issued in connection with our
acquisition of EWCO, and the $40,200 of related accrued interest, out of the proceeds of Tarpons
initial public offering of its common shares. Interest expense of $40,200 is removed from the
income statement, assuming the note was paid January 1, 2004. The note bears interest at 8% and is
payable at the closing of such offering, or nine months after issuance, if earlier.  10.
    Payment for Consulting with Stock. This adjustment records the payment of an accrued expense for past consulting services payable
at the closing of Tarpons initial public offering in common shares equal to $10,000 divided by our
initial public offering price. As a result, accounts payable is reduced by $10,000 and common
shares is increased by the same amount. 124




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PRO FORMA TARPON INDUSTRIES INC. EWCO ACQUISITION ADJUSTMENTS I. EWCO Tax Provision This adjustment removes the tax provision of $116,013 for EWCO at December 31, 2004 due to a valuation allowance being fully provided against the tax benefit of tax losses generated. II. EWCO Depreciation Adjustment The adjustment to revise EWCOs depreciation based on the allocation of the purchase price to
its assets is $13,000. HAINES ROAD ACQUISITION ADJUSTMENTS  A.
    Haines Road Acquisition This adjustment adjusts the Haines Road assets to the following fair values in connection with
the purchase of Haines Road: Asset
    
    Original
    
    
    Adjustment
    
    
    ValueIntra-company receivable
    
    $
    3,305,700
    
    
    $
    (3,305,700
    )
    
    $
    Building and leasehold improvements
    
    
    2,809,052
    
    
    
    (464,652
    )
    
    
    2,344,400Land
    
    
    964,960
    
    
    
    1,537,813
    
    
    
    2,502,773Equipment
    
    
    9,101,372
    
    
    
    (4,024,423
    )
    
    
    5,076,949Furniture and fixtures
    
    
    71,069
    
    
    
    (28,113
    )
    
    
    42,956Transportation equipment
    
    
    
    
    
    
    33,514
    
    
    
    33,514Accumulated depreciation
    
    
    (5,593,541
    )
    
    
    5,593,541
    
    
    
    Inventory
    
    
    2,565,677
    
    
    
    (1,560,431
    )
    
    
    1,005,246Prepaid expenses
    
    
    297,538
    
    
    
    145,427
    
    
    
    442,965Intangible assets
    
    
    
    
    
    
    1,200,000
    
    
    
    1,200,000Accrued expenses
    
    
    (131,160
    )
    
    
    131,160
    
    
    
    Income taxes payable
    
    
    (456,901
    )
    
    
    456,901
    
    
    
    Deferred tax liability
    
    
    (798,064
    )
    
    
    798,064
    
    
    
    Total
    
    $
    12,135,702
    
    
    $
    513,101
    
    
    $
    12,648,803
 This adjustment assumes that we pay the following portions of the purchase price for Haines
Road as follows: Software licenses
    
    $
    20,398
    
    
    AccruedAsset purchase price
    
    $
    7,716,575
    
    
    See Note BReal estate purchase price
    
    
    4,650,630
    
    
    See Note CCapitalized acquisition costs
    
    
    131,428
    
    
    Remove assetPenalty for closing after 9/15/04 ($40,870/month)
    
    
    187,948
    
    
    CashAdditional equipment and spare parts price
    
    
    574,356
    
    
    CashFirst amending agreement expenses
    
    
    171,981
    
    
    CashInventory price
    
    
    1,005,246
    
    
    CashSuccess fee
    
    
    200,000
    
    
    AccruedTotal
    
    $
    14,658,562
 125




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Goodwill is calculated and recorded as follows: Fair value of assets
    
    $
    (12,648,803
    )Purchase price
    
    
    14,658,562Goodwill
    
    $
    2.009,759
 The above allocations of the purchase price are subject to change as a result of changes in
the purchase price, changes in the assets acquired at closing, identification of identifiable
intangible assets, and further information concerning the fair values of assets acquired and
liabilities assumed. Such changes could material affect the balance sheet classifications of the
assets acquired and the amount of the purchase price remaining to be allocated to goodwill, after
allocation to the fair value of assets acquired and liabilities assumed. This adjustment also removes Haines Roads retained earnings and removes Haines Roads foreign
currency translation adjustment at December 31, 2004 in the following amounts: Retained earnings
    
    
    12,934,573Foreign currency translation adjustment
    
    
    2,410,888
 A Phase I and II environmental report prepared in June 2003 for the Haines Road facility in
Mississauga, Ontario did not identify any material noncompliance with applicable environmental
legislation and guidelines, except that it recommended that the facility determine whether it is
required to obtain from the appropriate regulatory agencies a certificate of approval for its
baghouse operation. The report also identified an area of petroleum hydrocarbon soil contamination
near a disconnected electrical transformer on the Haines Road property. A Phase I update for the Haines Road facility was performed in December 2004. The report
reconfirmed the prior reports conclusions regarding the need to determine whether a certificate of
approval is necessary for the baghouse operation. We expect to determine the necessity of these
approvals and, if the approvals are required, to file the necessary applications after the closing
of our acquisition of Haines Road. The December 2004 Phase I update also reconfirmed the prior
reports observations regarding an area of petroleum hydrocarbon soil contamination near a
disconnected electrical transformer on the Haines Road property and also identified an additional,
similar staining around an above-ground fuel storage tank. We expect to perform additional testing
on these areas after the closing of our acquisition of Haines Road. 126




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The adjustments also remove depreciation recorded in Haines Roads financial statements and
substitutes depreciation based on the fair value of the assets as of December 31, 2004: Original depreciation
    
    $
    749,221Amount included in SG&A
    
    
    30,403Amount included in cost of goods sold
    
    $
    718,818Revised building depreciation
    
    $
    70,838Revised equipment depreciation
    
    
    738,429Total
    
    $
    809,267Revised furniture and fixture depreciation
    
    $
    25,116
  B.
    Haines Road Asset Purchase Price This adjustment assumes that we pay approximately $6,447,081 of the Haines Road purchase price
out of the proceeds of Tarpons initial public offering of common shares, except for the portion
financed, as described in Note E, that we incur approximately $979,080 in additional indebtedness
to acquire Haines Road and that we use $290,414 of deposits paid before December 31, 2004 to pay
the purchase price. Cash
    
    $
    6,447,081Short-term note
    
    
    979,080Exchange gain on deposits
    
    
    25,298Deposits
    
    
    265,116$
    7,716,575
 The note is payable 15 months after closing or by offset against amounts owed for purchases by
Bolton from Haines Road after closing and bears interest at 8% a year. We have assumed that the
note will be paid by offset ratably over the 12 months after closing. Interest under this note of
$79,709 is recorded.  C.
    Haines Road Real Estate Purchase Price This adjustment assumes that we pay approximately $407,950 of the Haines Road purchase price
out of the proceeds of Tarpons initial public offering of common shares, that we incur
approximately $1,223,850 in additional indebtedness to acquire the Haines Road real estate, and
that we obtain the mortgage described in Note D. Cash
    
    $
    407,950Long-term note
    
    
    1,223,850Mortgage  long-term
    
    
    2,993,612Mortgage  short-term
    
    
    25,218$
    4,650,630
 The long-term note is payable 15 months after closing and bears interest at 8% a year.
Interest under this note of $99,636 is recorded. 127




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D.
    Haines Road Real Estate Mortgage Interest This adjustment assumes we obtain approximately $3,018,830 in mortgage financing to pay a
portion of the purchase price for the Haines Road real estate, although we currently have no
commitment for the mortgage financing. We assume the financing will require equal monthly payments
of principal and interest over a 30-year term and bear interest at 8% a year, making $25,218 of
such financing short term. Interest under this note of $244,841 is recorded.  E.
    Haines Road Equipment Loan This adjustment assumes we obtain approximately $1,713,390 in equipment financing to pay a
portion of the cash purchase price payable for Haines Road that is described in Note A. We assume
the financing will require equal monthly principal and interest payments over a five year term and
bear interest at 5% a year, making $309,361 of the loan short-term and $1,404,029 long-term. The
proceeds are shown as increasing cash, which, in turn, is used to pay the cash portion of the
Haines Road purchase price. Interest under this note of $80,032 is recorded.  F.
    Haines Road Inventory Financing This adjustment assumes we obtain a revolving line of credit for Haines Road and financing
half of the purchase price of the Haines Road inventory, or $502,623, with borrowings under this
line of credit. We assume the revolving line of credit will mature in five years and bear interest
at 5% a year. Interest under this revolving line of credit borrowing of $25,131 is recorded.  G.
    Intercompany Receivables and Sales Intercompany sales of $365,306 from Haines Road to Steelbank are eliminated, including an
equal amount of cost of goods sold.  H.
    Tax Provision This adjustment records a tax provision of ($39,324) on the Haines Road acquisition
adjustments.  I.
    Bolton Interest Expense This adjustment removes interest expense of $593,679 allocated to Haines Road by Bolton in
2004.  J.
    Amortization of Intangible Assets This adjustment records $80,000 of amortization expense on intangible assets.  K.
    Inventory This adjustment removes the inventory purchase adjustment of $85,932 to fair market value. 128




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES Our management has evaluated, with the participation of our principal executive and principal
financial officers, the effectiveness of our disclosure controls and procedures as of December 31,
2004, and, based on their evaluation, our principal executive and principal financial officers have
concluded that these controls and procedures are effective as of December 31, 2004, except as
otherwise described below. There was no change in our internal control over financial reporting
identified in connection with such evaluation that occurred during our fourth fiscal quarter ended
December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting, except that we hired additional staff, which will help
improve our internal controls over financial reporting. Disclosure controls and procedures are our controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated
and communicated to our management, including our principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure. Until April 2004, we consisted only of a holding company with no operations. In April and May
2004, we acquired EWCO and Steelbank. These companies were established private companies with
accounting procedures not suitable for public company reporting. In July 2004, we agreed to
purchase Haines Road, and in February 2005 we completed our acquisition of Haiones Road except for
real estate. This was one operation of a larger private company, again with accounting procedures
which were not suitable for public company reporting. Our Independent Registered Public Accounting Firm has identified a variety of deficiencies in
our internal controls over financial reporting. These deficiencies stem in significant part from
the acquisition policy which we are following in which private, unrelated companies are being
combined. Eight of these deficiencies were classified as significant which when aggregated meet
the definition of a material weakness in our internal control. A material weakness is a
significant deficiency, or a combination of significant deficiencies, that results in more than a
remote likelihood that a material misstatement of the annual or interim financial statements will
not be prevented or detected. The significant deficiencies are as follows:  A.
    A lack of formalized accounting policies and procedures, including written procedures
for monthly, quarterly and annual closing of financial books and records.B.
    A lack of common systems or a common chart of accounts an use of spreadsheets to
perform consolidations, which resulted in errors, andC.
    A lack of review and oversight of the reporting process which has resulted in the
inability to detect errors. 129




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D.
    Insufficient process to ensure financial statements adequately disclose information
required by Generally Accepted Accounting Principles (GAAP)E.
    Account reconciliations and supporting documentation not prepared on a timely basis.F.
    Duties and control activities with the finance function have not been appropriately
segregated.G.
    The company does not have a formal process to ensure that appropriate system access is
granted.H.
    A lack of adequate process to identify and ensure that non-standard journal entries are
subject to an appropriate level of review. In addition, our independent auditors have informed us that they do not believe we have
the resources or knowledge to adequately complete the process of documenting, testing, and
evaluating our internal controls over financial reporting as required by section 404 of the
Sarbanes-Oxley Act, which could result in failure to file the appropriate reports with the SEC. As a public company, we have significant requirements for enhanced financial reporting and
internal controls. We are taking steps to unify the financial reporting of all of our component
companies, to increase our accounting and information technology staff and to put in place internal
controls concerning accounting entries and adjustments, with full documentation, which are
responsive to issues raised by our independent auditors, and, as of this time, we have made
progress on these points. We have hired additional staff and are in the initial planning phase of
upgrading our information technology systems. We expect these steps to be completed by December 31,
2005, but it is possible that they might not be completed by then. These efforts require significant time and resources. If we are unable to establish
appropriate internal financial reporting controls and procedures, our reported financial
information may be inaccurate and we will encounter difficulties in the audit or review of our
financial statements by our independent auditors, which in turn may have material adverse effects
on our ability to prepare financial statements in accordance with generally accepted accounting
principles and to comply with our SEC reporting obligations. 
 ITEM 9B. OTHER INFORMATION On January 12, 2005, we entered into an employment agreement with J. Peter Farquhar effective
as of August 20, 2004, pursuant to which he is employed as our Chairman of the Board, Chief
Executive Officer and Secretary or in such other position as the board of directors determines, for
a period ending January 12, 2007 or his earlier death, disability or termination for cause. In
April of 2005, Mr. Farquhar agreed to devote all of his business time to the Company, and as a
result, in April 2005, we amended and restated Mr. Farquhars employment agreement to appropriately
compensate him for his increased commitment to the Company. Under the amended and restated
employment agreement, Mr. Farquhar continues to be entitled to all of the rights under his original
employment agreement, except that (1) the agreement was amended provided that upon expiration, it
would renew on the same terms and conditions unless either party provides the other party with 180
days written notice of termination, (2) Mr. Farquhars annual salary was increased to $250,000,
effective as of the date of such amended and restated employment agreement, (3) Mr. Farquhar may
receive a discretionary bonus of up to 50% of his salary, as determined by the Compensation
Committee, (4) Mr. Farquhar is entitled to certain additional fringe benefits under 130




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the amended and restated agreement, including a $750 a month allowance for automobile expenses
and four weeks of paid vacation, (5) Mr. Farquhar has the right to terminate the employment
agreement for good reason, in which case he would be entitled to severance payments equal to his
aggregate salary and benefits for one year, and (6) in the event that that the Company or its
subsidiaries consummate a transaction in which they acquire 100% of the outstanding common stock or
substantially all of the assets of a company, the Company is required to pay Mr. Farquhars
membership initiation fee, annual dues and monthly membership fees at country club, subject to
certain limitations. In addition, Mr. Farquhars covenant not to compete was amended to provided
that he would not engage in activity that is reasonably likely to compete with the Company or its
subsidiaries and he agreed not to be employed by, consult with, or have any interest in, any entity
which conducts a business in which the Company or its subsidiaries are engaged during the term of
his employment agreement. In April 2004, we entered into a Management Consulting Agreement with Bainbridge Advisors,
Inc., an advisory firm primarily owned by Gary D. Lewis, our former Chairman of the Board,
President and Chief Executive Officer. Mr. Lewis founded the Company, then known as Wall St.
Acquisitions, Inc., and served as its Chairman of the Board and Chief Executive Officer and as one
of its directors from its inception in January 2002 until the closing of our initial acquisition,
EWCO, in April 2004 and served as its President from January 2003 until April 2004. He has been
primarily responsible for implementing our business strategy, including identifying the EWCO,
Haines Road and Steelbank acquisitions. Pursuant to the agreement, Bainbridge, primarily through
Gary D. Lewis, provides consulting services for us concerning the integration of the EWCO, Haines
Road and Steelbank acquisitions, the further development and implementation of our business and
financing plans and strategy, our expansion and acquisition plans and other areas, all to the
extent we and Bainbridge mutually agree. In exchange for Bainbridges consulting services, agreed
to pay Bainbridge (1) $15,000 a month, (2) all reasonable expenses incurred by Bainbridge in
connection with the agreement, including (a) fees and expenses of legal counsel retained at our
direction, (b) legal fees up to $7,500 in connection with preparing the agreement, (c)
out-of-pocket costs incurred in performing the agreement, and (d) up to $5,000 a year for
professional liability errors and omissions insurance relating to Bainbridges services, (3) 4% of
the total consideration paid in an acquisition approved by our board, with a minimum of $200,000
and a maximum of $300,000 for each transaction, and (4) a stock option to Bainbridge or its
designees to purchase 110,000 common shares at an exercise price equal to 110% of our initial
public offering price. On April 15, 2005, we amended the Management and Consulting Agreement to (1) make a one-time
payment of $50,000 in consideration of certain advisory services rendered to the Company that were
not originally contemplated by the parties, and (2) increase the monthly fee from $15,000 to
$20,000, effective April 2005, and (3) to revise the calculation of the maximum success fee to
provide that the maximum success fee shall be $300,000 plus 0.2% of the enterprise value of an
acquisition, but only to the extent that the enterprise value of such transaction exceeds
$50,000,000. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 regarding our executive officers is included in the
Supplemental Item in Part I of this report, and is incorporated in this Item 10 by reference. The 131




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information required by this Item 10 regarding our directors will be set forth under the
caption Election of Director in our Proxy Statement in connection with the 2005 Annual Meeting of
Shareholders scheduled to be held June 9, 2005, and is incorporated in this Item 10 by reference.
The information required by this Item 10 concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 will be set forth under the caption Section 16(a) Beneficial Ownership
Reporting Compliance in our Proxy Statement in connection with the 2005 Annual Meeting of
Shareholders scheduled to be held June 9, 2005, and is incorporated in this Item 10 by reference. The information required by this Item 10 concerning our Code of Business Conduct and Ethics
will be set forth under the caption Code of Business Conduct and Ethics in our Proxy Statement in
connection with the 2005 Annual Meeting of Shareholders scheduled to be held June 9, 2005, and is
incorporated in this Item 10 by reference. 
 ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 concerning executive compensation will be set forth
under the caption Executive Compensation in our Proxy Statement in connection with the 2005
Annual Meeting of Shareholders scheduled to be held June 9, 2005, and is incorporated in this Item
11 by reference. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this Item 12 concerning security ownership of certain beneficial
owners and management will be set forth under the captions Voting Securities and Principal
Holders and Election of Director in our Proxy Statement in connection with the 2005 Annual
Meeting of Shareholders scheduled to be held June 9, 2005, and is incorporated in this Item 12 by
reference. The equity compensation plan information required by this Item 12 will be set forth
under the caption Equity Compensation Plan Information in our Proxy Statement in connection with
the 2005 Annual Meeting of Shareholders scheduled to be held June 9, 2005, and is incorporated in
this Item 12 by reference. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 concerning certain relationships and related
transactions, if any, will be set forth under the caption Certain Transactions or Compensation
Committee Interlocks and Insider Participation in our Proxy Statement in connection with the 2005
Annual Meeting of Shareholders scheduled to be held June 9, 2005, and is incorporated in this Item
13 by reference. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item 14 concerning principal accountant fees and services
will be set forth under the caption Independent Accountants in our Proxy Statement in connection
with the 2005 Annual Meeting of Shareholders scheduled to be held June 20, 2005, and is
incorporated in this Item 14 by reference. 132




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PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  (a)
    Financial Statements Our financial statements for the following years and entities are included in response to item
8 of this report: PageTarpon Industries, Inc.Report of Independent Registered Public Accounting Firm
    
    
    63Balance Sheets - December 31, 2004 and 2003
    
    
    65Statements of Operations - For the Years Ended December 31, 2004, 2003 and 2002
    
    
    66Statements of Shareholders Equity - For the Years Ended December 31, 2004, 2003 and 2002
    
    
    67Statements of Cash Flows - For the Years Ended December 31, 2004, 2003 and 2002
    
    
    68Notes to Financial Statements
    
    
    70Quarterly information
    
    
    86Eugene Welding Co.Report of Independent Registered Public Accounting Firm
    
    
    87Balance Sheets - March 31, 2004 and December 31, 2003 and 2002
    
    
    88Statements of Operations - For the Three Months Ended March 31, 2004 and For the Years Ended December 31, 2003, 2002, and 2001
    
    
    89Statements of Shareholders Equity - For the Three Months Ended March 31, 2004 and For the Years Ended December 31, 2003, 2002, and 2001
    
    
    90Statements of Cash Flows - For the Three Months Ended March 31, 2004 and For the Years Ended December 31, 2003, 2002, and 2001
    
    
    91Notes to Financial Statements
    
    
    92Haines RoadReport of Independent Registered Public Accounting Firm
    
    
    101Balance Sheets - December 31, 2004 and 2003
    
    
    102Statements of Operations and Location Equity - For the Years Ended December 31, 2004, 2003 and 2002
    
    
    103Statements of Cash Flows - For the Years Ended December 31, 2004, 2003 and 2002
    
    
    104Notes to Financial Statements
    
    
    105Pro Forma Combined Financial Statements (unaudited)Introduction
    
    
    115Pro Forma Consolidated Balance Sheet - December 31, 2004
    
    
    117Pro Forma Consolidated Statements of Operations - For the Year Ended December 31, 2004
    
    
    118Notes to Pro Forma Consolidated Financial Statements
    
    
    119
 133




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(b)
    Financial Statement Schedules. Schedule
    
    PageSchedule II  Tarpon Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2004, and 2003.
    
    
    S-1Schedule II  EWCO Valuation and Qualifying Accounts and Reserves for the three month period ended March 31, 2004 and the years ended December 31, 2003, 2002, and 2001.
    
    
    S-2
  (c)
    Exhibits. The exhibits to this report are as set forth in the Index to Exhibits immediately following
the Financial Statement Schedules in this report. Each management contract or compensatory plan or
arrangement filed as an exhibit to this report is identified in the Index to Exhibits with an
asterisk after the exhibit number. 134




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. TARPON INDUSTRIES, INC.
(Registrant)Dated:  May 6, 2005
    By:
    /s/ J. Peter FarquharJ. Peter FarquharIts:  Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the capacities and on the dates
indicated. Signature
    
    Title
    
    Date/s/ J. Peter Farquhar
J. Peter Farquhar
    
    Chief Executive Officer and a Director
(Principal Executive Officer)
    
    May 6, 2005/s/ James T. House
James T. House
    
    Senior Vice President, Chief Financial
Officer, Chief Accounting Officer, Treasurer and
Assistant Secretary
(Principal Financial Officer and Principal Accounting Officer)
    
    May 6, 2005/s/ Dr. Robert Pry
Dr. Robert Pry
    
    Director
    
    May 6, 2005/s/ Michael A. Ard
Michael A. Ard
    
    Director
    
    May 6, 2005
 135




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SCHEDULE II  TARPON INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended December 31, 2004 and
December 31, 2003. Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EAdditions(2)
    
    
    (3)
    
    
    (1)Balance at
    
    
    Charged to
    
    
    Charge to
    
    
    
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    Other Accts.,
    
    
    Deductions,
    
    
    End ofof Period
    
    
    Expenses
    
    
    Describe
    
    
    Describe
    
    
    PeriodAllowance for Doubtful AccountsYear ended December 31, 2004
    
    $
    
    
    
    $
    190,196
    
    
    
    222,988
    
    
    $
    346,692
    
    
    $
    66,492Year ended December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Note: (1) Write-off uncollectible accounts, net of recoveries
Note: (2) Reserve of additional uncollectible accounts, net of recoveries
Note: (3) Acquisition of EWCOs net assets S-1




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SCHEDULE II  EUGENE WELDING CO.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the three months ended March 31, 2004 and
for the years ended December 31, 2003. Allowance for Doubtful Accounts Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EAdditions(2)
    
    
    (3)
    
    
    (1)Balance at
    
    
    Charged to
    
    
    Charge to
    
    
    
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    Other Accts.,
    
    
    Deductions,
    
    
    End ofof Period
    
    
    Expenses
    
    
    Describe
    
    
    Describe
    
    
    PeriodThree month period ended March 31, 2004
    
    $
    321,941
    
    
    $
    199,276
    
    
    $
    
    
    
    
    $298,229
    
    
    
    $222,988Year ended December 31, 2003
    
    
    38,099
    
    
    
    283,842
    
    
    
    
    
    
    
    
    
    
    
    321,941Year ended December 31, 2002
    
    
    138,592
    
    
    
    40,051
    
    
    
    
    
    
    
    140,544
    
    
    
    38,099Year ended December 31, 2001
    
    
    97,215
    
    
    
    70,495
    
    
    
    
    
    
    
    29,118
    
    
    
    138,592Note: (1) Write-off uncollectible accounts, net of recoveriesNote: (2) Reserve of additional uncollectible accounts, net of recoveries.Inventory reserve for obsolescence:Three month period ended March 31, 2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Year ended December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year ended December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year ended December 31, 2001
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    Note (3) Write-off obsolete, excess inventory, net of recoveries.
 S-2




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EXHIBIT INDEX Exhibit
    
    Description2.1
    
    Stock Purchase Agreement, dated as of November 23, 2003, between
Charles Vanella and Wall St. Acquisitions, Inc. (now know as Tarpon
Industries, Inc.), including First Amendment to Share Purchase
Agreement, dated as of February 1, 2004, Second Amendment to Share
Purchase Agreement, dated as of February 18, 2004, Third Amendment
to Share Purchase Agreement, dated as of March 23, 2004, and Fourth
Amendment to Share Purchase Agreement, dated as of April 2, 2004,
incorporated by reference to Exhibit 2.1 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.2.2
    
    Redemption Agreement, dated as of April 2, 2004, between Eugene
Welding Co. and Charles Vanella, incorporated by reference to
Exhibit 2.2 to the registrants registration statement on Form S-1
(file no. 333-120117) filed on November 1, 2004.2.3
    
    Share Purchase Agreement, dated as of April 2, 2004, among BST
Acquisitions Ltd., Tarpon Industries, Inc., Jeffrey Greenberg, Mark
D. Madigan and Barry Seigel, incorporated by reference to Exhibit
2.3 to the registrants registration statement on Form S-1 (file
no. 333-120117) filed on November 1, 2004.2.4
    
    Amending Agreement, dated as of May 5, 2004, among Barry Seigel,
Jeffrey Greenberg and Mark Madigan, BST Acquisition Ltd. and Tarpon
Industries, Inc., incorporated by reference to Exhibit 2.4 to
amendment no. 1 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on January 14, 2005.2.5
    
    Second Amending Agreement, dated as of December 10, 2004, among
Barry Seigel, Jeffrey Greenberg and Mark Madigan, BST Acquisition
Ltd., Tarpon Industries, Inc. and Steelbank Inc., incorporated by
reference to Exhibit 2.5 to amendment no. 1 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
January 14, 2005.2.6
    
    Asset Purchase Agreement, dated as of June 21, 2004, between BST
Acquisition, Ltd. And Bolton Steel Tube Co., Ltd., including forms
of notes, incorporated by reference to Exhibit 2.4 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.2.7
    
    Form of Real Estate Purchase Agreement between 1387746 Ontario Inc.
and BST Acquisition Ltd., incorporated by reference to Exhibit 2.7
to amendment no. 1 to the registrants registration statement on
Form S-1 (file no. 333-120117) filed on January 14, 2005.2.8
    
    First Amending Agreement, dated as
of December 15, 2004, between Bolton Steel Tube Co. Ltd., BST Acquisition, Ltd. and Winston Penny
and Henry Koury, incorporated by reference to Exhibit 2.8 to
amendment no. 1 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on January 14, 2005.
 S-3




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Exhibit
    
    Description2.9
    
    Second Amending Agreement, dated as of February 11, 2005, between
Bolton Steel Tube Co. Ltd., BST Acquisition, Ltd. and Winston Penny
and Henry Koury, incorporated by reference to Exhibit 2.3 to the
registrants Current Report on Form 8-K, dated February 17, 2005.2.10
    
    Guarantee, dated as of February 17, 2005, executed by Tarpon
Industries, Inc. in favor of Bolton Steel Tube Co., Ltd.,
incorporated by reference to Exhibit 2.4 to the registrants
Current Report on Form 8-K, dated February 17, 2005.3(i)
    
    Amended and Restated Articles of Incorporation of Tarpon
Industries, Inc., incorporated by reference to Exhibit 3(i) to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.3(ii)
    
    Amended and Restated Bylaws of Tarpon Industries, Inc.,
incorporated by reference to Exhibit 3(ii) to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.4.1
    
    Specimen Stock Certificate, incorporated by reference to Exhibit
4.1 to amendment no. 1 to the registrants registration statement
on Form S-1 (file no. 333-120117) filed on January 14, 2005.4.2
    
    Loan and Security Agreement, dated as of August 11, 2004 between
Standard Federal Bank N.A. and Eugene Welding Co., including forms
of Revolving Note and Term Note, incorporated by reference to
Exhibit 4.2 to the registrants registration statement on Form S-1
(file no. 333-120117) filed on November 1, 2004.4.3
    
    Continuing Unconditional Guaranty of Tarpon Industries, Inc. to
Standard Federal Bank, N.A., dated August 11, 2004, incorporated by
reference to Exhibit 4.3 to the registrants registration statement
on Form S-1 (file no. 333-120117) filed on November 1, 2004.4.4
    
    Securities Pledge Agreement, dated August 11, 2004, between Tarpon
Industries, Inc. and Standard Federal Bank, N.A., incorporated by
reference to Exhibit 4.4 to the registrants registration statement
on Form S-1 (file no. 333-120117) filed on November 1, 2004.4.5
    
    Subordination Agreement, dated August 11, 2004 between Charles A.
Vanella and Standard Federal Bank, N.A., incorporated by reference
to Exhibit 4.5 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on November 1, 2004.4.6
    
    Subordination Agreement, dated August 11, 2004 between Anand Dhanda
and Standard Federal Bank, N.A., incorporated by reference to
Exhibit 4.6 to the registrants registration statement on Form S-1
(file no. 333-120117) filed on November 1, 2004.4.7
    
    Subordination Agreement, dated August 11, 2004 between Riyaz Jinnah
and Standard Federal Bank, N.A., incorporated by reference to
Exhibit 4.7 to the registrants registration statement on Form S-1
(file no. 333-120117) filed on November 1, 2004.4.8
    
    Subordination Agreement, dated
August 11, 2004, between Joseph Gunnar & Co., LLC, as agent of the note holders, and Standard
Federal Bank, N.A., incorporated by reference to Exhibit 4.8 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.
 S-4




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Exhibit
    
    Description4.9

    
    Factoring Agreement, dated as of May 14, 2004, between Greenfield
Commercial Credit, Inc. and Steelbank, Inc., incorporated by
reference to Exhibit 4.9 to the registrants registration statement
on Form S-1 (file no. 333-120117) filed on November 1, 2004.4.10
    
    Security Agreement, dated as of May 14, 2004, between Greenfield
Commercial Credit, Inc. and Steelbank, Inc., incorporated by
reference to Exhibit 4.10 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on November 1,
2004.4.11
    
    Guarantee, dated as of May 14, 2004, from Tarpon Industries, Inc.
to Greenfield Commercial Credit, Inc., incorporated by reference to
Exhibit 4.11 to the registrants registration statement on Form S-1
(file no. 333-120117) filed on November 1, 2004.4.12
    
    Subordination Agreement, dated May 2004 among Anand Dhanda, Riyaz
Jinnah and Greenfield Commercial Credit, Inc., incorporated by
reference to Exhibit 4.12 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on November 1,
2004.4.13
    
    Subordination Agreement, dated as of May 14, 2004, between Joseph
Gunnar & Co., LLC, as agent of the note holders, and Greenfield
Commercial Credit, Inc., incorporated by reference to Exhibit 4.13
to the registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.4.14
    
    Subordination Agreement, dated as of May 14, 2004, among Barry
Seigel, Jeffrey Greenberg, Mark Madigan and Greenfield Commercial
Credit, Inc., incorporated by reference to Exhibit 4.14 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.4.15
    
    Amendment to Loan and Security Agreement, dated December 24, 2004
between Standard Federal Bank N.A. and Eugene Welding Company,
including amended revolving note, incorporated by reference to
Exhibit 4.15 to amendment no. 1 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on January 14,
2005.4.16
    
    Loan Agreement, dated as of February 17, 2005, by and among LaSalle
Business Credit, a division of ABN AMRO Bank N.V., Canada Branch
and Steelbank Inc., incorporated by reference to Exhibit 10.1 to
the registrants Current Report on Form 8-K, dated February 17,
2005.4.17
    
    Guarantee, dated as of February 17, 2005, executed by Tarpon
Industries, Inc. in favor of LaSalle Business Credit, a division of
ABN AMRO Bank N.V., Canada Branch, incorporated by reference to
Exhibit 10.2 to the registrants Current Report on Form 8-K, dated
February 17, 2005.4.18
    
    General Security Agreement, dated as of February 17, 2005, executed
by Steelbank Inc. in favor of LaSalle Business Credit, a division
of ABN AMRO Bank N.V., Canada Branch, incorporated by reference to
Exhibit 10.3 to the registrants Current Report on Form 8-K, dated
February 17, 2005.4.19
    
    General Security Agreement, dated as of February 17, 2005, executed
by Tarpon Industries, Inc. in favor of LaSalle Business Credit, a
division of ABN AMRO Bank N.V., Canada Branch, incorporated by reference to Exhibit 10.4 to the registrants Current Report on
Form 8-K, dated February 17, 2005.
 S-5




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Exhibit
    
    Description4.20
    
    Share Pledge Agreement, dated as of February 17, 2005, executed by
Tarpon Industries, Inc. in favor of LaSalle Business Credit, a
division of ABN AMRO Bank N.V., Canada Branch, incorporated by
reference to Exhibit 10.5 to the registrants Current Report on
Form 8-K, dated February 17, 2005.10.1
    
    Form of Promissory Note made by Eugene Welding Co. in favor of
Charles A. Vanella, including Guaranty of Tarpon Industries, Inc.,
incorporated by reference to Exhibit 10.1 to amendment no. 1 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on January 14, 2005.10.2
    
    Form of First Amendment to Promissory Note made by Eugene Welding
Co. in favor of Charles A. Vanella, incorporated by reference to
Exhibit 10.2 to amendment no. 1 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on January 14,
2005.10.3
    
    Stock Pledge Agreement between Eugene Welding Co. and Charles A.
Vanella and Cusmano & Co., P.C., effective April 2, 2004,
incorporated by reference to Exhibit 10.3 to amendment no. 1 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on January 14, 2005.10.4
    
    Lease Agreement, dated October 22, 2001, between Eugene Welding Co.
and the Charles J. Loznak Trust, concerning its Marysville and
Marlette, Michigan facilities, incorporated by reference to Exhibit
10.1 to the registrants registration statement on Form S-1 (file
no. 333-120117) filed on November 1, 2004.10.5
    
    Form of Promissory Note made by Steelbank Inc. in favor of Barry
Seigel, Jeffrey Greenberg and Mark Madigan, in the principal amount
of Cdn $800,000, incorporated by reference to Exhibit 10.5 to
amendment no. 1 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on January 14, 2005.10.6
    
    Form of Promissory Note made by Steelbank Inc. in favor of each of
Barry Seigel, Jeffrey Greenberg and Mark Madigan, each in the
principal amount of Cdn $135,000, incorporated by reference to
Exhibit 10.6 to amendment no. 1 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on January 14,
2005.10.7
    
    General Security Agreement, dated May 14, 2004, made by Steelbank
Inc. to and in favor of Barry Seigel, Jeffrey Greenberg and Mark
Madigan, incorporated by reference to Exhibit 10.7 to amendment no.
1 to the registrants registration statement on Form S-1 (file no.
333-120117) filed on January 14, 2005.10.8
    
    Securities Pledge Agreement, dated May 14, 2004, made by BST
Acquisition Ltd. and Steelbank Inc. to and in favor of Barry
Seigel, Jeffrey Greenberg and Mark Madigan, incorporated by
reference to Exhibit 10.8 to amendment no. 1 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
January 14, 2005.10.9
    
    Guarantee, dated May 14, 2004, made by Steelbank Inc. to and in
favor of Barry Seigel, Jeffrey Greenberg and Mark Madigan,
incorporated by reference to Exhibit 10.9 to amendment no. 1 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on January 14, 2005.10.10
    
    Lease Agreement, dated July 1,
2001, between Ciriaco Forgione and Filomena Forgione and Tube Distributors, Inc. (assigned to
Steelbank, Inc.), concerning its Mississauga, Ontario facility,
incorporated by reference to Exhibit 10.2 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.
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Exhibit
    
    Description10.11*
    
    Tarpon Industries, Inc. 2004 Stock Option Plan, incorporated by
reference to Exhibit 10.3 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on November 1,
2004.10.12*
    
    Forms of Stock Option Agreement under the 2004 Stock Option Plan,
incorporated by reference to Exhibit 10.4 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.10.13*
    
    Employment Agreement, dated as of January 12, 2004, among Tarpon
Industries, Inc., Eugene Welding Co. and J. Peter Farquhar,
incorporated by reference to Exhibit 10.13 to amendment no. 1 to
the registrants registration statement on Form S-1 (file no.
333-120117) filed on January 14, 2005.10.14*
    
    Amended and restated employeement agreement, dated as of April 15,
2005, among Tarpon Industries, Inc., Eugene Welding Co., Steelbank
Tubular, Inc. and J. Peter Farquhar, incorporated by reference to
Exhibit 10.14 to the registrants Annual Report on Form 10-K for
the year ended December 31, 2004,10.15*
    
    Employment Agreement, dated as of July 8, 2004, among Tarpon
Industries, Inc., Eugene Welding Co. and James T. House,
incorporated by reference to Exhibit 10.6 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.10.16*
    
    Employment Agreement, dated May 14, 2004, between Steelbank, Inc.
and Jeffrey Greenberg, incorporated by reference to Exhibit 10.7 to
the registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.10.17*
    
    Employment Agreement, dated May 14, 2004, between Steelbank, Inc.
and Mark D. Madigan, incorporated by reference to Exhibit 10.8 to
the registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.10.18*
    
    Employment Agreement, dated May 14, 2004, between Steelbank, Inc.
and Barry Seigel, incorporated by reference to Exhibit 10.9 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.10.19*
    
    Employment Agreement, dated as of November 1, 2002, between EWCO
and C. David Weaver, incorporated by reference to Exhibit 10.10 to
the registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.10.20*
    
    Employment Agreement, dated as of February 1, 2005, among Tarpon
Industries, Inc., Eugene Welding Company, Steelbank Inc., BST
Acquisition Ltd. and Patrick Hook, incorporated by reference to
Exhibit 10.19 to amendment no. 2 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on February 3,
2005.10.21*
    
    Termination Agreement, dated as of September 3, 2004, among Tarpon
Industries, Inc., Eugene Welding Co., Steelbank, Inc., BST
Acquisition Ltd. and Charles A. Vanella, incorporated by reference
to Exhibit 10.11 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on November 1, 2004.
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Exhibit
    
    Description10.22*
    
    Management Consulting Agreement, dated April 7, 2004, between
Tarpon Industries, Inc. and Bainbridge Advisors, Inc. and First
Amendment to Management Consulting Agreement, dated as of October 13, 2004,
effective April 7, 2004, incorporated by reference to Exhibit 10.12
to the registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.10.23*
    
    Second amendment to Management and Consulting Agreement, dated as
of April 15, 2005, between Tarpon Industries, Inc., Eugene Welding
Co., Steelbank Tubular, Inc. and Bainbridge Advisors, Inc.
Incorporated by reference to Exhibit 10.22 to the registrants
Annual Report on Form 10-K for the year ended December 31, 2004.10.24
    
    Agency Agreement, dated as of March 25, 2004, between Tarpon
Industries, Inc. and Joseph Gunnar & Co., LLC, concerning 2004 note
financing, incorporated by reference to Exhibit 10.13 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.10.25
    
    Form of Warrant to Purchase Common Stock of Tarpon Industries,
Inc., issued to purchasers of notes in February, March and April
2004, incorporated by reference to Exhibit 10.14 to the
registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.10.26
    
    Form of Warrant to Purchase Common Stock of Tarpon Industries,
Inc., issued to designees of Joseph Gunnar & Co., LLC, the
placement agent in our April 2004 note financing, incorporated by
reference to Exhibit 10.15 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on November 1,
2004.10.27
    
    Form of Tarpon Industries, Inc. 8% Junior Secured Promissory Note
issued in February, March and April 2004, incorporated by reference
to Exhibit 10.16 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on November 1, 2004.10.28
    
    Form of Agency Appointment Agreement, dated as of April 5, 2004,
between Joseph Gunnar & Co., LLC and each of the purchasers of our
notes in April 2004, incorporated by reference to Exhibit 10.17 to
the registrants registration statement on Form S-1 (file no.
333-120117) filed on November 1, 2004.10.29
    
    General Security Agreement, dated as of April 5, 2004, between
Tarpon Industries, Inc. and Joseph Gunnar & Co., LLC, as
representative of the note holders, incorporated by reference to
Exhibit 10.18 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on November 1, 2004.10.30
    
    Guaranty, dated as of April 5, 2004, from Eugene Welding Co. to
Joseph Gunnar & Co., LLC, as representative of the note holders,
incorporated by reference to Exhibit 10.19 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.10.31
    
    General Subordinated Security Agreement, dated as of April 5, 2004,
between Eugene Welding Co. and Joseph Gunnar & Co., LLC, as
representative of the note holders, incorporated by reference to
Exhibit 10.20 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on November 1, 2004.
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Exhibit
    
    Description10.32
    
    Guaranty, dated as of May 18, 2004, from Eugene Welding Co. to
Riyaz H. Jinnah and Anand M. Dhanda, incorporated by reference to
Exhibit 10.21 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on November 1, 2004.10.33
    
    General Subordinated Security Agreement, dated as of April 2004,
between Eugene Welding Co. and Riyaz H. Jinnah and Anand M. Dhanda,
incorporated by reference to Exhibit 10.22 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.10.34
    
    Guaranty, dated as of May 18, 2004, from Steelbank, Inc. to Joseph
Gunnar & Co., LLC, as representative of the note holders,
incorporated by reference to Exhibit 10.23 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.10.35
    
    General Subordinated Security Agreement, dated as of May 18, 2004,
between Steelbank, Inc. and Joseph Gunnar & Co., LLC, as
representative of the note holders, incorporated by reference to
Exhibit 10.24 to the registrants registration statement on Form
S-1 (file no. 333-120117) filed on November 1, 2004.10.36
    
    Guaranty, dated as of May 18, 2004, from Steelbank, Inc. to Riyaz
H. Jinnah and Anand M. Dhanda, incorporated by reference to Exhibit
10.25 to the registrants registration statement on Form S-1 (file
no. 333-120117) filed on November 1, 2004.10.37
    
    General Subordinated Security Agreement, dated as of May 14, 2004,
between Steelbank, Inc. and Riyaz H. Jinnah and Anand M. Dhanda,
incorporated by reference to Exhibit 10.26 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
November 1, 2004.10.38
    
    Investment Banking Agreement, dated as of April 5, 2004, between
Tarpon Industries, Inc. and Joseph Gunnar & Co., LLC., incorporated
by reference to Exhibit 10.27 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on November 1,
2004.10.39
    
    Form of Promissory Note to be made by BST Acquisition Ltd. in favor
of Bolton Steel Tube Co. Ltd., incorporated by reference to Exhibit
10.36 to amendment no. 2 to the registrants registration statement
on Form S-1 (file no. 333-120117) filed on February 3, 2005.10.40
    
    Form of General Security Agreement to be made between BST
Acquisition Ltd. and Bolton Steel Tube Co. Ltd., incorporated by
reference to Exhibit 10.37 to amendment no. 2 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
February 3, 2005.10.41
    
    Form of Guarantee to be made by Tarpon Industries, Inc. in favor of
Bolton Steel Tube Co. Ltd., incorporated by reference to Exhibit
10.38 to amendment no. 2 to the registrants registration statement
on Form S-1 (file no. 333-120117) filed on February 3, 2005.10.42
    
    Form of Lock-up Agreement between Joseph Gunnar & Co., LLC and
Tarpon Industries, Inc. shareholders and holders of options and
warrants, incorporated by reference to Exhibit 10.40 to amendment
no. 3 to the registrants registration statement on Form S-1 (file
no. 333-120117) filed on February 11, 2005.10.43
    
    Form of Underwriting Agreement, incorporated by reference to
Exhibit 1.1 to amendment no. 3 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on February 11, 2005.
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Exhibit
    
    Description10.44
    
    Form of Lead Underwriters Warrant Agreement, incorporated by
reference to Exhibit 1.2 to amendment no. 3 to the registrants
registration statement on Form S-1 (file no. 333-120117) filed on
February 11, 2005.14.1
    
    Code of Business Conduct and Ethics, incorporated by reference to
Exhibit 14.1 to the registrants registration statement on Form S-1
(file no. 333-120117) filed on November 1, 2004.21.1
    
    Subsidiaries of the Registrant, incorporated by reference to
Exhibit 21.1 to amendment no. 2 to the registrants registration
statement on Form S-1 (file no. 333-120117) filed on February 3,
2005.31.1
    
    Certifications of Chief Executive Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    Certifications of Chief Financial Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 S-10