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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One)  x
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 2420 Wills Street,
Marysville, Michigan
48040
(Address of principal executive offices)
(Zip Code) (810) 364-7421
(Registrants telephone number, including area code) N/A
(Former name, former address and former fiscal year, if changed since last report) 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 whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes o
No þ The number of the registrants common shares outstanding as of May 23, 2005 was
4,640,130.




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TARPON INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2005 TABLE OF CONTENTS PAGEPART I  FINANCIAL INFORMATION
    
    
    2ITEM 1. FINANCIAL STATEMENTS
    
    
    2ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    19ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    30ITEM 4. CONTROLS AND PROCEDURES
    
    
    32PART II  OTHER INFORMATION
    
    
    34ITEM 1. LEGAL PROCEEDINGS
    
    
    34ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    34ITEM 5. OTHER INFORMATION
    
    
    37ITEM 6. EXHIBITS
    
    
    43Certifications of CEO - Section 302Certifications of CFO - Section 302Certifications of CEO and CFO - Section 906
  1




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PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS TARPON INDUSTRIES, INC. INDEX TO FINANCIAL STATEMENTS PageTarpon Industries, Inc.Consolidated Balance Sheets - March 31, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Operations - For the Three Months Ended March 31, 2005 and 2004
    
    
    4Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6
 2




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.) 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETS:CURRENT ASSETS:Cash and cash equivalents
    
    $
    2,859,630
    
    
    $
    257,786Accounts receivable (less allowance for doubtful accounts for 2005 of $57,676
and for 2004 of $66,492)
    
    
    6,955,886
    
    
    
    8,327,708Inventories
    
    
    8,070,989
    
    
    
    7,604,384Prepaid expenses
    
    
    416,457
    
    
    
    569,040Prepaid initial public offering expenses
    
    
    
    
    
    
    2,076,468Deposits
    
    
    202,212
    
    
    
    265,116Income tax receivable
    
    
    188,273
    
    
    
    52,552Capitalized acquisition costs
    
    
    
    
    
    
    131,428Total current assets
    
    
    18,693,447
    
    
    
    19,284,482Property plant and equipment  net
    
    
    5,967,612
    
    
    
    635,051Deferred financing costs
    
    
    82,927
    
    
    
    71,812Goodwill
    
    
    3,589,229
    
    
    
    1,279,810Intangible assets, net of amortization
    
    
    1,606,584
    
    
    
    436,638TOTAL ASSETS
    
    $
    29,939,799
    
    
    $
    21,707,793LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT):CURRENT LIABILITIES:Short-term debt
    
    $
    5,944,959
    
    
    $
    11,467,706Accounts payable  trade
    
    
    8,308,209
    
    
    
    8,345,395Accrued expenses
    
    
    880,905
    
    
    
    781,222Success fees
    
    
    272,222
    
    
    
    233,333Income taxes payable
    
    
    43,713
    
    
    
    135,712Current maturities on long-term debt
    
    
    746,394
    
    
    
    405,107Total current liabilities
    
    
    16,196,402
    
    
    
    21,368,475Long-term debt less current maturities
    
    
    3,606,705
    
    
    
    1,314,218Other long-term liabilities
    
    
    39,013
    
    
    
    64,286Long-term success fees, less current maturities
    
    
    91,667
    
    
    
    SHAREHOLDERS EQUITY (DEFICIT):Common shares; no par value, authorized, 20,000,000 shares at March 31,
2005 and 10,000,000 shares at December 31, 2004; issued and outstanding,
4,640,130 shares at March 31, 2005 and 1,229,732 shares at December 31, 2004
    
    
    14,804,225
    
    
    
    2,130,952Accumulated deficit
    
    
    (5,021,089
    )
    
    
    (3,411,380
    )Foreign currency translation
    
    
    222,876
    
    
    
    241,242Total shareholders equity (deficit)
    
    
    10,006,012
    
    
    
    (1,039,186
    )TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
    
    $
    29,939,799
    
    
    $
    21,707,793
 3




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.) 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 Three Months Ended March 31,2005
    
    
    2004REVENUES:Sales, net of customer discounts
    
    $
    14,018,356
    
    
    $
    COST OF GOODS SOLD:Materials
    
    
    9,858,473
    
    
    
    Direct labor
    
    
    903,614
    
    
    
    Manufacturing overhead
    
    
    2,472,345
    
    
    
    Total cost of goods sold
    
    
    13,234,432
    
    
    
    Gross profit
    
    
    783,924OPERATING EXPENSES:Selling, general and administrative expenses
    
    
    2,269,341
    
    
    
    161,294Depreciation and amortization
    
    
    89,275
    
    
    
    Total operating expenses
    
    
    2,358,616
    
    
    
    161,294OPERATING LOSS
    
    
    (1,574,692
    )
    
    
    (161,294
    )OTHER (INCOME) EXPENSE:Miscellaneous income
    
    
    13,363
    
    
    
    Interest expense
    
    
    271,330
    
    
    
    3,782Financing costs
    
    
    14,915
    
    
    
    Interest and dividend income
    
    
    (4,805
    )
    
    
    Foreign exchange
    
    
    (124,460
    )
    
    
    Total other (income) expense
    
    
    170,343
    
    
    
    3,782LOSS BEFORE INCOME TAXES
    
    
    (1,745,035
    )
    
    
    (165,076
    )PROVISION FOR INCOME TAXES
    
    
    (135,326
    )
    
    
    NET LOSS
    
    $
    (1,609,709
    )
    
    $
    (165,076
    )NET LOSS PER COMMON SHARE  BASIC AND DILUTED
    
    $
    (0.57
    )
    
    $
    (0.14
    )WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
    
    
    2,830,644
    
    
    
    1,219,952
 4




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.) 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS(unaudited)
 Three Months Ended March 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (1,609,709
    )
    
    $
    (165,076
    )Adjustments
to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    149,723
    
    
    
    62,959Unrealized foreign currency (gain)
    
    
    (19,294
    )
    
    
    Non-employee stock options
    
    
    424,200
    
    
    
    Other
    
    
    
    
    
    
    22,500Changes in assets and liabilities:Accounts receivable decrease
    
    
    1,362,835
    
    
    
    Refundable federal income taxes (increase)
    
    
    (227,325
    )
    
    
    Inventory decrease
    
    
    850,151
    
    
    
    Prepaid expenses (increase)
    
    
    (52,309
    )
    
    
    (34,478
    )Accounts payable and accrued expenses increase (decrease)
    
    
    (590,619
    )
    
    
    156,685Net cash
provided by operating activities
    
    
    287,653
    
    
    
    42,590CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions, net of cash received
    
    
    (7,622,453
    )
    
    
    (50,657
    )Capital and other expenditures
    
    
    (32,496
    )
    
    
    Net cash used in investing activities
    
    
    (7,654,949
    )
    
    
    (50,657
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of common shares (net of issuance
costs paid in 2005 of $1,154,485)
    
    
    13,594,265
    
    
    
    Initial public offering expenditures
    
    
    
    
    
    
    (5,000
    )Financing costs
    
    
    (20,000
    )
    
    
    (129,534
    )Borrowings on bank loan
    
    
    12,939,352
    
    
    
    Repayment of bank loan
    
    
    (13,705,780
    )
    
    
    Proceeds from 2004 note financing
    
    
    
    
    
    
    150,000Proceeds from issuance of long term debt
    
    
    1,654,474
    
    
    
    Repayment of long-term obligations
    
    
    (75,464
    )
    
    
    Repayment of short-term obligations
    
    
    (4,417,707
    )
    
    
    Net cash provided by financing activities
    
    
    9,969,140
    
    
    
    15,466NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    2,601,844
    
    
    
    7,399CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    257,786
    
    
    
    22,454CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    2,859,630
    
    
    $
    29,853Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    306,212
    
    
    $
    Non-cash transactions:Success fee obligation for acquisition
    
    $
    200,000
    
    
    $
    Accrued
initial public offering expenditures
    
    $
    427,913
    
    
    $
    Stock issued as payment of debt
    
    $
    303,180
    
    
    $
    
 5




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.) 
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(unaudited) 1. Financial Statement Presentation We prepared our unaudited interim financial statements pursuant to the Securities and Exchange
Commissions rules. Accordingly, they do not include all of the information and notes normally
included in our annual financial statements prepared in accordance with generally accepted
accounting principles. We believe, however, that the disclosures are adequate to make the
information presented not misleading. The unaudited interim financial statements in this report reflect all adjustments which are,
in our opinion, necessary to a fair statement of the results for the interim periods presented.
All of these adjustments that are material are of a normal recurring nature. Our operating results
for the three-month period ended March 31, 2005 do not necessarily indicate the results that should
be expected for the year ending December 31, 2005. The unaudited interim financial statements
should be read together with the financial statements and related notes for the year ended December
31, 2004 included in our Annual Report on Form 10-K/A for the year ended December 31, 2004. 2. 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, was acquired in April 2004, and Steelbank, Inc., or Steelbank, was
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. The Company completed the acquisition of the
assets, other than the real estate, of the Haines Road facility of Bolton Steel Tube Co., Ltd., or
Haines Road through Steelbank, Inc., in February 2005, and in May 2005 it completed the
acquisition of the real estate assets. Haines Road manufactures primarily mechanical steel tubing
at a manufacturing facility located near Toronto, Ontario, Canada. On April 6, 2005, Steelbank,
Inc. changed its name to Steelbank Tubular, Inc. We intend to seek other acquisitions in the steel
tubing, racking and related industries, although we currently have no agreement for any other such
acquisition. 6




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Consolidation The consolidated financial statements as of March 31, 2005 and for the three months ended
March 31, 2005 include the accounts of the Company and its wholly-owned subsidiaries, EWCO
(acquired April 2004), Steelbank (acquired May 2004) and the assets of Haines Road from their
February 2005 date of acquisition. The current Steelbank and the assets of Haines Road were
combined into a new Steelbank in February 2005. Steelbank changed its name to
Steelbank Tubular, Inc. in April 2005. 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. Accounts Receivable and Concentration of Credit Risk Periodically
during the first quarter of 2005, the Company maintained a balance in
one financial institution in excess of the federally insured limit of $100,000. The Company had two major customers in the first quarter of 2005 that accounted for
approximately 30% of net sales in that period and approximately 18% of accounts receivable at March
31, 2005. The Company had four major suppliers in the first quarter of 2005 that accounted for
approximately 40% of net purchases in that period. Foreign Currency Risk At
March 31, 2005, Steelbank Tubular, Inc.s receivables include U.S. $432,463 and
payables include U.S. $1,109,174. 3. Acquisitions In February 2005, Steelbank completed the acquisition of substantially all of the assets,
other than the real estate, of the Haines Road facility from Bolton Steel Tube Co., Ltd. pursuant
to an Asset Purchase Agreement originally entered into in July 2004, as amended. Haines Road
manufactures primarily mechanical steel tubing at a manufacturing facility located near Toronto,
Ontario, Canada. The aggregate purchase price including expenses related to the transaction was
approximately $10,190,000 (Cdn.$12,489,000) consisting of
(1) approximately $9,211,000
(Cdn.$11,289,000) payable in cash (2) approximately $979,000 (Cdn.$1,200,000) secured, subordinated
promissory note, either payable 15 months after closing or by offsetting adjustments made after
closing or for purchases by Bolton from Haines Road,
(3) approximately $9,689,000 (Cdn.$11,875,000)
for the assets acquired, (4) a
$200,000 success fee in connection with the transaction, payable to Bainbridge Advisors over 24
months and (5) approximately $301,000 in expenses related to the
transaction. We funded a portion of the purchase price with proceeds
from our initial public Offering and from
a term loan described in Note 7. 7




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Pursuant
to a Guarantee between Tarpon and Bolton, Tarpon guaranteed Steelbank
Tubular, Inc.s
obligations under the secured subordinated promissory note executed
by Steelbank Tubular, Inc. 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. Bolton also agreed not to compete with Tarpon on the
pre-galvanized tubing market for six months. On May 18, 2005, Steelbank Tubular, Inc. purchased the Haines Road real estate assets,
including closing fees and expenses, for $4,638,000 (Cdn. $5,870,000), consisting of (1)
approximately $530,000 (Cdn. $670,000) in cash, (2) approximately $2,765,000 (Cdn. $3,500,000) one
year mortgage bridge financing, and (3) vendor financing of approximately $948,000 (Cdn.
$1,200,000) and $395,000 (Cdn. $500,000) payable August 16, 2006 in second and third mortgage
financing, respectively. We leased 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). The following table summarizes the assets acquired and liabilities assumed in connection with
the acquisition of the Haines Road facility: Haines Road **Current assets
    
    $
    1,317,000Property, plant and equipment
    
    
    5,356,000Goodwill
    
    
    2,305,000Other intangible assets
    
    
    1,212,000Total assets
acquired
    
    
    10,190,000
   **
    
    converted at the exchange rate in effect at the date of acquisition The following unaudited proforma consolidated information is provided as if the acquisition of
the Haines Road facility of Steelbank Tubular, Inc. and EWCO 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. 8




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Quarter Ended March 31,2005
    
    
    2004(in thousands, except per share data)Net sales
    
    $
    16,484
    
    
    $
    15,021Loss before taxes
    
    $
    (1,364
    )
    
    $
    (66
    )Net loss
    
    $
    (1,196
    )
    
    $
    (195
    )Net loss per common share  basic and diluted
    
    $
    (0.26
    )
    
    $
    (0.04
    )Weighted average number of common shares outstanding
    
    
    4,640,130
    
    
    
    4,630,350
 4. Goodwill and Intangible Assets The changes in goodwill and intangible assets for the first three months of 2005 are as follows: CovenantCustomer
    
    
    Not toGoodwill
    
    
    Base
    
    
    Compete
    
    
    TotalBalance at 12/31/04, net
    
    $
    1,279,810
    
    
    $
    89,223
    
    
    $
    347,415
    
    
    
    1,716,448Acquisition of Haines Road
    
    
    2,283,990
    
    
    
    1,200,624
    
    
    
    
    
    
    
    3,484,614Foreign currency impact
    
    
    25,429
    
    
    
    18,946
    
    
    
    (4,208
    )
    
    
    40,1672005 amortization
    
    
    
    
    
    
    (22,436
    )
    
    
    (22,980
    )
    
    
    (45,416
    )Balance at 3/31/05, net
    
    $
    3,589,229
    
    
    $
    1,286,357
    
    
    $
    320,227
    
    
    $
    5,195,813
 Steelbank
Tubular, Inc. had accumulated amortization related to the customer lists of Steelbank
and Haines Road as at March 31, 2005 of $25,944. Steelbank
Tubular, Inc. also had accumulated
amortization related to a covenant not to compete as of March 31, 2005 of $57,746.
The covenant not to compete is being amortized on a straight-line
basis over the life of the agreement which is six years. The customer
bases are amortized in proportion to their expected future benefits. Annual estimated total amortization expense is as follows: 2005
    
    $
    220,1032006
    
    
    271,9732007
    
    
    278,8892008
    
    
    267,3622009
    
    
    224,714Thereafter
    
    
    343,543Total
    
    $
    1,606,584
 9




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 5. Details of Balance Sheet INVENTORIES: March 31,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    4,631,244
    
    
    $
    4,289,648Work in process
    
    
    428,913
    
    
    
    602,390Finished goods
    
    
    2,609,167
    
    
    
    2,599,276Supplies
    
    
    401,665
    
    
    
    113,070Total
    
    $
    8,070,989
    
    
    $
    7,604,384
 The Company has no inventory obsolescence reserve as of March 31, 2005. PROPERTY, PLANT AND EQUIPMENT: March 31,
    
    
    December 31,2005
    
    
    2004Machinery and equipment
    
    $
    5,491,554
    
    
    $
    394,554Leasehold improvements
    
    
    400,334
    
    
    
    211,622Computer equipment
    
    
    130,489
    
    
    
    32,710Transportation equipment
    
    
    54,819
    
    
    
    24,500Furniture and fixtures
    
    
    71,487
    
    
    
    77,090Total
    
    
    6,148,683
    
    
    
    740,476Accumulated depreciation and amortization
    
    
    (181,071
    )
    
    
    (105,425
    )Net property, plant and equipment
    
    $
    5,967,612
    
    
    $
    635,051
 10




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 6. Short-Term Debt Short-term debt can be summarized as follows: March 31,
    
    
    December 31,2005
    
    
    2004EWCO revolving credit facility
    
    $
    5,944,959
    
    
    $
    6,711,387Note issued in connection with redemption of EWCO shares
    
    
    
    
    
    
    670,000Note issued with acquisition of Steelbank
    
    
    
    
    
    
    764,388Full recourse factoring liabilities
    
    
    
    
    
    
    1,171,931Bridge loan payable
    
    
    
    
    
    
    2,150,000Steelbank revolving credit facility (see note 7)
    
    
    
    
    
    
    Total
    
    $
    5,944,959
    
    
    $
    11,467,706
 7. Long-Term Debt and Capital Leases Long-term debt and capital lease obligations can be summarized as follows: March 31,
    
    
    December 31,2005
    
    
    2004EWCO term loan
    
    $
    1,277,833
    
    
    $
    1,347,533Notes payable to former shareholders of Steelbank
    
    
    332,910
    
    
    
    336,272Steelbank term loan
    
    
    1,726,200
    
    
    
    Note payable to Bolton Steel Tube Company, Ltd.
    
    
    986,400
    
    
    
    Other, including capital lease obligation
    
    
    29,756
    
    
    
    35,520Total
    
    
    4,353,099
    
    
    
    1,719,325Current portion
    
    
    (746,394
    )
    
    
    (405,107
    )Long-term portion
    
    $
    3,606,705
    
    
    $
    1,314,218
 Annual maturities of long-term debt and capital lease obligations are as follows: 2006
    
    $
    746,3942007
    
    
    1,731,3582008
    
    
    742,7692009
    
    
    624,7052010
    
    
    507,873$
    4,353,099
 11




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 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. Principal on the term loan is payable in sixty equal monthly installments of $35,000 Canadian
dollars beginning on April 1, 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 March 1, 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 the Lender. The Loan Agreement contains customary covenants that will limit the ability of Steelbank
Tubular 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 $7,480,200 (Cdn.$9,100,000) or 90% of Steelbanks actual net
worth, if higher. For quarters ending on or after June 30, 2005, the minimum adjusted net worth of
the previous quarter will be increased by 75% of the Net Income for that quarter (ignoring quarters
in which there is a loss). It also requires Steelbank Tubular 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), of at least 1.25 to
1.00. It also requires Steelbank Tubular to maintain interest coverage (generally net income
adjusted for interest expense, bank fees and net costs under 12




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 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. As of March 31, 2005, Steelbank Tubular was not in compliance with the financial covenants.
Steelbank Tubular has obtained a commitment from ABN AMRO Bank N.V., Canada Branch to adjust
financial covenants and maintain compliance. Steelbank Tubular paid an $83,000 closing fee and must pay a 0.50% unused line of credit fee
and an approximately $1,666 monthly administrative fee. As of May 13, 2005, $791,000 was borrowed
under the revolving line of credit, approximately $1,631,000 was outstanding under the Term Loan,
and approximately $1,606,000 was available for borrowing under the revolving credit facility
without violating any of the existing debt covenants. Steelbank Tubular used the borrowings under the credit facility to provide partial funding for
the acquisition of substantially all of the assets and business of the Haines Road facility and the
cash portion of the Haines Road real estate, to pay transaction fees and expenses, to refinance
Steelbanks full-recourse factoring arrangement and for general working capital purposes of
Steelbank. On May 18, 2005, Steelbank Tubular secured $2,765,000 (Cdn. $3,500,000) in a one-year mortgage
financing jointly secured by the Haines Road real estate and Tarpon Industries with interest
payable at 1.5% over Canadian prime rate . In addition, it secured second and third mortgages from
the seller, Bolton Steel Tube Company, Ltd., totaling $948,000 (Cdn. $1,200,000) and $395,000
(Cdn.$500,000) with interest payable at 8% and 10% respectively. The
proceeds of above mentioned loans were used to fund a portion of the purchase
price for Haines Road. EWCO has a credit facility with Standard Federal Bank, N.A., including a revolving credit
facility for up to $9,000,000, subject to a borrowing base based on eligible inventory and
receivables, originally maturing August 31, 2007, and a $1,394,000 term loan. As of March 31,
2005, EWCO was not in compliance with the financial covenants. EWCO
has obtained a non-binding commitment from
Standard Federal Bank to adjust financial covenants and maintain compliance. As of May 16, 2005,
approximately $5,283,000 was outstanding under the revolving credit facility, approximately
$1,231,000 was outstanding under the term loan, and approximately $906,000 was available for
borrowing under the revolving credit facility, assuming revision of
existing financial covenants. 8. Comprehensive Loss Our
comprehensive losses are as follows:  Quarter Ended March 31,2005
    
    
    2004Net loss
    
    $
    (1,609,709
    )
    
    $
    (165,076
    )Other
comprehensive loss - foreign currency translation adjustments
    
    
    (18,366
    )
    
    
    Comprehensive loss
    
    $
    (1,628,075
    )
    
    $
    (165,076
    )
 9. Stock Options As of October 22, 2004, our board of directors and shareholders adopted the Tarpon Industries,
Inc. 2004 Stock Option Plan. The plan allows us to grant incentive stock options and non-qualified
stock options to our directors, officers, employees, consultants and advisors to purchase up to an
aggregate of 650,000 common shares. During the first quarter of 2005, we granted options under the plan to purchase 348,285 common
shares to consultants, officers, employees and directors of the Company. The options are
exercisable at $5.50 a share and vest immediately, for the consultant and director options, or in
cumulative annual installments over three years for the officer and employee options. No 13




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) options were granted during the first quarter of 2004, and no options were exercised in the
first quarter of 2005 or 2004. We have also agreed to grant the three former shareholders of Steelbank Inc. options to
purchase a number of common shares equal to a combined total of approximately $138,889 per year
divided by the fair market value of the common shares on the date of grant, which will be
exercisable at 110% of the fair market value of the common shares on the date of grant. The options
will be granted to each of them after the calendar years 2005, 2006, and 2007, if certain
performance targets are met in those years, and will be immediately vested. Had compensation expense for stock options that vested in the first quarter of 2005 been
determined based on the fair value of the options on the grant date pursuant to the methodology of
SFAS No. 123, our results of operations, on a pro forma basis, would have been as follows: Quarter Ended March 31,2005
    
    
    2004(in thousands, except per share data)Net income (loss)
    
    $
    (1,610
    )
    
    $
    (165
    )Stock-based employee compensation expense had fair
value
method been applied
    
    
    (25
    )
    
    
    Pro forma net loss
    
    $
    (1,635
    )
    
    $
    (165
    )Net loss per
common share - basic and diluted
    
    $
    (0.57
    )
    
    $
    (0.14
    )Pro forma
net loss per common share - basic and diluted
    
    $
    (0.58
    )
    
    $
    (0.14
    )
 The fair value of options granted was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for option grants during the first
quarter of 2005: risk-free interest rate of 3.78%; dividend yield of 0%; volatility factors of the
expected market price of the Companys common stock of 60%; and a weighted-average expected life of
the options of five years. No options were granted during the first quarter of 2004. 10. Related Party Transactions In April 2004, the Company entered into a Management Consulting Agreement with Bainbridge
Advisors, Inc. (primarily owned by the former Chairman and Chief Executive Officer and his son).
See Note 14 for a description of an amendment to this agreement. The following table summarizes
the compensation to the former Chairman and Chief Executive Officer and his son, individually
and through Bainbridge Advisors, Inc.: 14




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Quarter Ended March 31,2005
    
    
    2004Advisory services and expenses
    
    $
    109,497
    
    
    $
    Stock options granted
    
    
    333,300
    
    
    
    Salaries and benefits
    
    
    
    
    
    
    114,929Success fees
    
    
    200,000
    
    
    
    Total
    
    $
    642,797
    
    
    $
    114,929
 During
the quarters ending March 31, 2005 and 2004, we paid $200,608 and
$20,500, respectively. As of March 31, 2005, liabilities included $363,889 of the success fees owed for the EWCO,
Steelbank and Haines Road acquisitions consummated in 2004 and 2005. 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. 11. Capitalization 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. 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 IPO and the over allotment exercise were
approximately $11,946,000. Proceeds of the offering were or will be used to finance the acquisition
of the Haines Road facility of Bolton Steel Tube Co., Ltd., to repay outstanding indebtedness,
including indebtedness related to prior acquisitions, and for working capital and capital
expenditures. 12. Contingencies In July 2004 the Michigan Department of Environmental Quality (MDEQ) notified EWCO that it
had concluded that EWCO 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 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 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 15




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) public comment a proposed consent order memorializing the agreement. The public comment
period expired April 20, 2005. The cost of the violation has been fully accrued; however, the
Company expects to receive partial reimbursement from a supplier who was deemed jointly
responsible. 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 and experience to
date, that the ultimate liability will not be material to the Companys business, financial
condition or results of operations. 16




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 12. Geographic Information Revenues by country for the Company are as follows for the three months ended March 31, 2005
and 2004: Three Months EndedMarch 31,2005
    
    
    2004United States
    
    $
    11,956,033
    
    
    $
    Canada
    
    
    2,062,323
    
    
    
    Total
    
    $
    14,018,356
    
    
    $
    
 13. Product Sales Products sold to external customers were as follows for the three months ended March 31, 2005
and 2004: Three Months EndedMarch 31,2005
    
    
    2004Manufactured by us:Structural Steel Tubing
    
    $
    4,848,633
    
    
    $
    Mechanical Steel Tubing
    
    
    1,605,573
    
    
    
    Steel Storage Rack Systems
    
    
    6,257,395
    
    
    
    Total
    
    $
    12,711,601
    
    
    $
    Manufactured by others:Structural Steel Tubing
    
    $
    461,485
    
    
    $
    Mechanical Steel tubing
    
    
    770,843
    
    
    
    Steel Storage Rack Systems
    
    
    74,427
    
    
    
    Total
    
    $
    1,306,755
    
    
    $
    
 14. Subsequent Events In April 2004, we entered into a Management Consulting Agreement with Bainbridge Advisors,
Inc., an advisory firm primarily owned by our former Chairman of the Board, President and Chief
Executive Officer. On April 15, 2005, we amended the Management and 17




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TARPON INDUSTRIES, INC. AND SUBSIDIARIES
(Formerly known as Wall St. Acquisitions, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 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. 18




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS The following discussion should be read together with our financial statements and related
notes appearing elsewhere in this report. See also the Cautionary Statement Regarding
Forward-Looking Statements in Part II, Item 5. Overview We were incorporated in January 2002 and Tarpon, our parent company, does not generate any
revenues. We completed our first acquisition, EWCO, in April 2004, our second acquisition,
Steelbank, in May 2004. Tarpon completed an initial public offering of its common shares in
February of 2005. The net proceeds from this financing were primarily utilized
to repay our 2004
note financing and promissory notes issued to sellers and to partially fund the acquisition of the
Haines Road facility. Our third acquisition, Haines Road, was consummated in February 2005, except
for its real estate. In May 2005, Tarpon concluded the purchase
of the Haines Road real estate. Steelbank Tubular, formed in February 2005 as a combination of Steelbank and Haines Road, and
EWCO derive revenues from sales of structural and mechanical steel tubing and steel storage rack
systems, and, for a portion of Steelbanks revenues, 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 rolled
steel and manufacturing costs, which we expense when the related product is sold, and selling,
general and administrative expenses, which we generally expense as incurred. Steel costs were
approximately 73% of EWCOs total cost of sales for the first quarter of 2005 and approximately 83%
of Steelbank Tubulars total cost of sales for the first quarter of 2005. The steel costs as a
percentage of sales at Steelbank Tubular in the first quarter reflect more of a distributor basis,
as the majority of sales were distribution-type sales rather than
sales of EWCO or Haines Road-produced products. In addition, gross profit was adversely
impacted as a result of finished goods and work-in-process inventory purchased from Bolton Steel
Tube Co. Ltd. in connection with the acquisition of Haines Road in February 2005, which afforded
little or nominal margin. The cost of sales will transition towards the typical manufacturing cost
of sales in subsequent quarters. 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 During the past year our business transformed from a company with no revenues seeking target
acquisitions to an enterprise with operating subsidiaries, including the acquisition of EWCO in
April 2004, Steelbank in May 2004 and Haines Road in February 2005. Therefore, 19




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meaningful direct comparisons between 2005 and 2004 are difficult to make on a consolidated
basis On a consolidated basis, we generated revenues of approximately $14,018,000 in the first
quarter of 2005, compared with no revenues in the first quarter of 2004. Our operations reflected
a net loss before taxes of approximately $1,745,000 in the first quarter of 2005, compared with a
net loss before taxes of approximately $165,000 in the first quarter of 2004. Our consolidated
first quarter 2005 results were materially impacted by several items, such as:  
    $424,000 of non-cash, non-employee stock option expense,
    $143,000 of personnel recruitment fees and one-time
contractual bonuses,
    $58,000 expense relating to legal expenses paid by us on behalf of the former
owners of Steelbank, in connection with our acquisition of Steelbank,
    $48,000 of interest expense associated with our 2004 Note Financing and
promissory notes issued to the former owners of Steelbank,
    $71,600 of interest expense associated with the Greenfield receivable factoring
agreement, which was refinanced
    $282,000 of annual audit expenses over and above regular quarterly
fees. These fees represent full audit fees for Haines Road and
year-end 10-K audit fees,
    $25,000 of rent expense associated with the former facility of Steelbank, which
has subsequently been sublet, and
    $124,000 of foreign exchange income. On
a pro forma consolidated basis of the Notes to Consolidated Financial Statements, our
operations (including those of Haines Road, which we acquired in February 2005) reflected net
revenues of approximately $16,484,000 million and a loss before income taxes for the first
quarter of 2005 of approximately $1,364,000. This compares with proforma revenue of approximately
$15,021,000 and loss before income taxes of approximately $66,000 for the first quarter of
2004, an increase in loss before income taxes of approximately $1,298,000. In the first quarter of 2005,
costs for steel declined from their fourth quarter 2004 levels.
We, like our competitors, have reduced our prices from fourth quarter 2004 levels. In addition to
price changes, we had a volume decrease of about 18% at EWCO due to softening demand for our tubing
and racking products in first quarter. First quarter 2004 steel tubing sales volumes were
significantly higher, in comparison to previous years and subsequent
quarter in 2004 as well as first quarter 2005, primarily due to customers
concerns over their ability to procure future supplies. Also, sales
efforts by Bolton Steel Tube were
significantly down in the first quarter of 2005 for the Haines Road
plant due to softening demand and less concentration on the segment
of the business they were selling to Tarpon Industries, Inc. All
of the above factors have contributed to our material decrease in
profitability. We might have to lower our prices to meet
competitors prices, perhaps more than cost decreases. We expect
competitive factors in our industry to result in more moderate gross
profit margins. We cannot quantify the impact of these factors on
future profitability but note that they will have a negative effect
on the profitability performance trends we have shown for 2004. Major
price fluctuations are characteristic of our industry and 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 inventory in such markets and quantities
as provide reasonable costs, but we might not be able to do some or
all of these things. 20




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Results of Operations Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 In the three months ended March 31, 2005 and 2004, Tarpons (including EWCO, Steelbank and
Haines Road, since the date of acquisition) net revenues and shipments were as follows: Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2004$(dollars in thousands)EWCO Tubular
    
    $
    5,172
    
    
    
    N/AEWCO SpaceRak
    
    
    6,332
    
    
    
    N/ASteelbank Tubular
    
    
    2,514
    
    
    
    N/ATotal
    
    $
    14,018
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2004Tons
    
    
    TonsEWCO Tubular
    
    
    6,215
    
    
    
    N/AEWCO SpaceRak
    
    
    4,469
    
    
    
    N/ASteelbank Tubular
    
    
    1,849
    
    
    
    N/ATotal
    
    
    12,533
 The following table reflects Tarpons (including EWCO, Steelbank and Haines Road since the
date of acquisition) cost of goods sold and the related gross margin percentages for the three
months ended March 31, 2005 and 2004: Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2004$
    
    
    GM%
    
    
    $
    
    
    GM%(dollars in thousands)EWCO Tubular
    
    $
    4,881
    
    
    
    5.6
    %
    
    
    N/A
    
    
    
    N/AEWCO SpaceRak
    
    
    6,031
    
    
    
    4.8
    %
    
    
    N/A
    
    
    
    N/ASteelbank Tubular
    
    
    2,322
    
    
    
    7.6
    %
    
    
    N/A
    
    
    
    N/ATotal
    
    $
    13,234
    
    
    
    5.6
    %
 21




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##### Table of Contents



The following table reflects Tarpons (including EWCO, Steelbank and Haines Road since the
date of acquisition) total operating expenses for the three months ended March 31, 2005 and 2004: Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2004$
    
    
    Sales %
    
    
    $
    
    
    Sales %(dollars in thousands)Tarpon (unconsolidated)
    
    $
    1,172
    
    
    
    8.4
    %
    
    $
    162
    
    
    
    N/AEWCO
    
    
    747
    
    
    
    5.3
    %
    
    
    N/A
    
    
    
    N/ASteelbank Tubular
    
    
    351
    
    
    
    2.5
    %
    
    
    N/A
    
    
    
    N/ATotal
    
    $
    2,270
    
    
    
    16.2
    %
    
    $
    162
 Net Revenues During the past year our business transformed from a company with no revenues seeking target
acquisitions to an enterprise with operating subsidiaries, including the acquisition of EWCO in
April 2004, Steelbank in May 2004 and Haines Road in February 2005. Therefore, meaningful direct
comparisons between 2005 and 2004 are difficult to make on a consolidated basis On the acquisition of Haines Road in
February 2005, Steelbank and the Haines Road
assets were combined into Steelbank Tubular. On a consolidated basis, we generated revenues of
approximately $14,018,000 in the first quarter of 2005, compared with no revenues in the first
quarter of 2004. On a pro forma basis, during the first quarter, Tarpon generated net revenues of
approximately $16,500,000 versus approximately $15,000,000 during the first quarter
of 2004. On a pro forma basis, EWCO had the following increases in average revenue per ton in the first
quarter of 2005 compared to the first quarter of 2004 (before we owned them): (1) $213, or 32.5%,
for EWCOs steel tubing products, (2) $366, or 34.8%, 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 last half of 2004, and declined from fourth
quarter 2004 levels in the first quarter of 2005. In the case of Steelbank Tubular, the timing of the acquisition of the Haines Road facility
and the change from a distribution orientated business to a manufacturing
business, makes comparative per ton and total revenue data between 2004 and 2005 not meaningful. 22




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Cost of Goods Sold and Gross Profit On a consolidated basis, the increase in Tarpons gross profit was due to its acquisition of
EWCO in April 2004, its acquisition of Steelbank in May 2004, and its acquisition of Haines Road in
February 2005. On a pro forma basis, EWCOs, Haines Roads and Steelbanks gross margin percentage
decreased from the first quarter of 2004 (when we did not own them)
to the first quarter of 2005 primarily due to:  
    Tubing gross profit decreased in first quarter 2005 versus first quarter 2004 largely
due to softening steel prices which generally reduces gross margins. In comparison, during
2004 steel prices rose increasing gross margins.
    Although overall manufacturing overhead for EWCO decreased from $2,486,000 in first
quarter 2004 to $2,208,000 in first quarter 2005 or by 11.2%, the decreased volume
resulted in a $33 per ton increased cost due to our fixed manufacturing costs being spread
over less volume
    Manufacturing overhead for the period from February 17 to March 31 for Steelbank Tubular
(Haines Road), was $264,000. Major costs were rent of $82,000,
utilities and property taxes of $71,000,
depreciation of $46,000 and personnel costs of $33,000.
    Gross profit was adversely impacted as a result of finished goods and work-in-process
inventory purchased from Bolton Steel Tube Co. Ltd. in connection with the acquisition of
Haines Road in February 2005, which afforded little or nominal margin. Scrap steel sales increased approximately $179,000 at EWCO and decreased approximately $62,000
at Haines Road in the first quarter of 2005, compared to the first quarter of 2004, primarily as a
result of an increase in scrap steel prices between those periods at EWCO
and lower production volumes at
Haines Road. Total Operating Expenses The increase in Tarpons total operating expense for the first quarter of 2005 compared to
the first quarter of 2004 of approximately $2,197,000 from $161,200 to $2,358,600 was primarily
attributable to (1) its acquisitions of EWCO in April 2004, Steelbank in May 2004 and Haines Road
in February 2005, (2) a $554,000 increase in legal,
consulting and accounting expenses (including approximately $282,000
in audit fees), primarily
due to the costs associated with public company compliance and (3) approximately $424,000 non-cash
expense associated with non-employees stock option grants,
(4) approximately $143,000 in recruitment fees and one-time
contractual bonuses and (5) an approximately $45,000 increase in
non-cash amortization expense relating to intangible assets acquired
in the Steelbank and Haines Road acquisitions. As a result of its acquisition, EWCO added approximately $836,000 to our operating expenses in
the first quarter of 2005. Major costs included (1) wages and benefits of approximately $303,000
(2) professional services expenses of approximately $173,000, (3) rent, utilities and office
expenses of approximately $146,000, and (4) selling expenses of approximately $120,000. 23




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The acquisitions of Steelbank and Haines Road added approximately $464,000 to our operating
expenses in the first quarter of 2005. Major costs included (1) wages and benefits of
approximately $162,000, (2) rent, utilities and office expenses
of approximately $81,000, including $25,000 of rent expense for
Steelbanks facility, which has subsequently been sublet, (3)
professional services of approximately $30,000, and (4) delivery and automobile expenses of
approximately $44,000, and (5) selling expenses of approximately
$30,000 and (6) approximately $58,000 of
legal expense paid by us on behalf of the former owners of Steelbank. Interest and Other Expenses Tarpons interest expense increased approximately $268,000 in the first quarter of 2005,
compared to the first quarter of 2004. The increase was primarily due to (1) approximately $43,400
of interest expense on the $2,150,000 2004 note financing primarily incurred after the first
quarter of 2004 and repaid in February 2005, (2) $17,592 of interest expense related to notes
payable to the former shareholder of EWCO, repaid in February 2005, (3) $4,700 of interest expense
related to notes payable to the former shareholders of Steelbank, repaid in February 2005, (4)
$8,100 of interest expense related to notes payable to the former owner of Haines Road, and (5)
$107,000 and $12,500 on EWCO and Steelbank Tubular indebtedness,
respectively and (6) $71,600 interest
expense on Steelbank indebtedness related to the Greenfield Commercial Credit, Inc. factoring
arrangement through February 2005. The factoring agreement was refinanced with
the revolving credit line with LaSalle Business Credit. Tarpons financing costs increased approximately $15,000 in the first quarter of 2005 compared
to the first quarter of 2004. The increase was due to the amortization of EWCO and Steelbanks
financing costs. 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 carry
forwards. The potential loss carry forward is approximately $4,600,000. Liquidity and Capital Resources Summary As of March 31, 2005, we had working capital of approximately $2,497,000, including cash and
cash equivalents of approximately $2,860,000, accounts receivable of approximately $6,956,000,
inventories of approximately $8,071,000 and total current liabilities of approximately $16,196,000,
including accounts payable of approximately $8,308,000. EWCO has a credit facility with Standard Federal Bank, N.A., including a revolving credit
facility for up to $9,000,000, and a $1,394,000 term loan. As of May 16, 2005, approximately
$906,000 was available for borrowing under the revolving credit facility. 24




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In February 2005, Steelbank entered into a credit facility with LaSalle Business Credit, a
division of ABN AMRO Bank N.V., Canada Branch, including a revolving credit line for up to
$8,000,000 Canadian dollars, and a $2,100,000 Canadian dollar term loan. 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 May 13, 2005, approximately $1,606,000 was available for borrowing under the
revolving credit facility. As
of May 23, 2005, Steelbank Tubular, Inc. and Ewco were not in
compliance with the financial loan covenants. Steelbank Tubular, Inc.
and EWCO have obtained non-binding commitments from their respective
lending institutions to adjust financial covenants and meet
compliance. On May 18, 2005, Steelbank Tubular, Inc. purchased the Haines Road real estate assets,
including closing fees and expenses, for $4,638,000 (Cdn. $5,870,000), consisting of (1)
approximately $530,000 (Cdn. $670,000) in cash, (2) approximately $2,765,000 (Cdn. $3,500,000) one
year mortgage bridge financing, and (3) vendor financing of approximately $948,000 (Cdn.
$1,200,000) and $395,000 (Cdn. $500,000) payable August 16, 2006 in second and third mortgage
financing, respectively. The estimated net proceeds of our initial public offering after deducting the total estimated
expenses of the offering were approximately $11,946,000, of which
approximately $1,917,000 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 operating and capital requirements for at least the next 12 months, except for
additional acquisitions. 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 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 May 16, 2005, approximately $906,000 was available for
borrowing under EWCOs revolving credit facility and as of May 13, 2005 approximately $1,606,000
was available for borrowing under Steelbank Tubulars revolving credit facility. See Financing
Arrangements for a discussion of Tarpons credit facility sources of liquidity over the next 12
months. In February 2005, Tarpon completed its initial public offering of common shares. The
estimated net proceeds, after deducting the total estimated expenses, of our initial public
offering were approximately $11,946,000, of which approximately $6,099,000 was used for the portion
of the purchase price in the Haines Road acquisition payable at the February 2005 closing of the
acquisition, and approximately $371,000 was used to pay a portion of the purchase price for the
Haines Road real estate in May 2005, approximately $3,559,000 of which was used to pay the notes
issued in February, March and April 2004 and in the EWCO and Steelbank acquisitions, 25




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and
approximately $2,446,500 of which is intended to be used for capital expenditures and working
capital. Three Months Ended March 31, 2005 Cash Flows From Operating Activities Net
cash provided by Tarpons (including Haines Roads since February 17, 2005) operations, during
the first three months of 2005 was approximately $288,000. Cash was used primarily by (1)
approximately $1,460,000 of losses before depreciation and amortization, (2) an approximately
$591,000 decrease in accounts payable and accrued expenses, primarily
due to more timely payment of
suppliers, (3) an approximately $227,000 increase in refundable income taxes, primarily due to tax
losses, and (4) an approximately $52,000 increase in prepaid
expenses. These decreases were partially offset by (1) an approximately $1,363,000 decrease in accounts
receivable, primarily due to decreased sales and (2) an approximately $850,000 decrease in
inventories primarily due to a shipment of a large SpaceRak order completed in the first quarter of
2005. Cash Flows From Investing Activities Tarpons (including Haines Road since February 17, 2005) investing activities in the first
three months of 2005, used approximately $7,655,000 in cash. Cash was used primarily as follows:
(1) approximately $7,622,000 by Tarpon to acquire Haines Road, and (2) approximately $33,000 by
EWCO and Haines Road to acquire miscellaneous equipment. Cash Flows From Financing Activities Tarpons (including Haines Road since February 17, 2005) financing activities provided
approximately $9,969,000 of cash flows in the first three months of 2005. Cash was provided
primarily by (1) approximately $13,594,000 in net proceeds from our initial public offering of
common shares, and (2) an approximately $888,000 in net borrowings by EWCO and Steelbank,
primarily related to the acquisition of Haines Road. These sources were partially offset by
approximately $4,493,000 primarily used to repay debt obligations associated with acquisition and
bridge loan financing. Financing Arrangements EWCO has a credit facility with Standard Federal Bank, N.A., including a revolving credit
facility for up to $9,000,000, 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 26




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principal amount outstanding 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. 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. As of March 31, 2005, EWCO was not in
compliance with the financial covenants. EWCO has obtained a
non-binding commitment from Standard Federal Bank
to waive the defaults and adjust financial covenants, which the Company believes will allow
it to maintain compliance. As of May 16, 2005, approximately $5,283,000 was outstanding under the revolving credit
facility, approximately $1,231,000 was outstanding under the term loan, and approximately $906,000
was available for borrowing under the revolving credit facility,
assuming revision of existing financial covenants. 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. 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
Loan Agreement requires compliance with several financial covenants, including adjusted
net worth of at least $9,100,000 Canadian dollars (or 90% of
Steelbanks actual net worth at February 17, 2005, if
higher) plus 75% of net income each quarter beginning June 30, 2005 (ignoring quarters in which
there is a net loss). It also requires Steelbank to maintain debt service coverage (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) of not less than 1.25 to 1.00. It also requires
Steelbank to maintain interest coverage (generally net income adjusted for 27




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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. As of March 31, 2005, Steelbank Tubular was not in compliance with the financial covenants.
Steelbank Tubular has obtained a non-binding commitment from ABN AMRO Bank N.V Canada Branch to adjust
financial covenants and maintain compliance. As of May 13, 2005, approximately $791,000 was outstanding under the revolving credit
facility, approximately $1,631,000 was outstanding under the term loan, and approximately
$1,606,000 was available for borrowing under the revolving credit facility without violating any of
the existing financial covenants. 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. On May 18, 2005, Steelbank Tubular, Inc. purchased the Haines Road real estate assets,
including closing fees and expenses, for $4,638,000 (Cdn. $5,870,000), consisting of (1)
approximately $530,000 (Cdn. $670,000) in cash, (2) approximately $2,765,000 (Cdn. $3,500,000) one
year mortgage bridge financing, and (3) vendor financing of approximately $948,000 (Cdn.
$1,200,000) and $395,000 (Cdn. $500,000) payable August 16, 2006 in second and third mortgage
financing, respectively. 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 and tax valuation allowances. 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. 28




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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 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,
Steelbank and Haines Road, 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 EWCO, and EWCO,
Steelbank and Haines Road 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 March 31,
2005, our intangible assets consisted of goodwill, customer base and covenants not to compete
relating to the Haines Road and Steelbank acquisitions. 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 and Haines Road acquisitions, 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 29




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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. 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. 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. 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 As of March 31, 2005, there have been no material changes outside the ordinary course of
business in the contractual obligations disclosed in our Annual Report on Form 10-K/A (Amendment
No. 1) for the fiscal year ended December 31, 2004 under the caption Contractual Obligations,
except for those caused by the acquisition of Haines Road, Steelbanks new credit facility with
LaSalle and our initial public offering of common shares, which are described in Notes 3, 7 and 10 of the Notes to Consolidated Financial Statements included in Item 1 of this report. 
 ITEM 3. 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. 30




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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, although for EWCO they declined in the first quarter of
2005 from fourth quarter 2004 levels. Haines Road continued to see cost increases due to the
ramifications of the transfer of ownership, availability of steel and the associated purchase
accounting. In 2004, we were generally successful in passing these higher steel costs on to our
customers because our competitors also increased their prices, but we are not always successful in
doing so. 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 our 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 present 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 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. 31




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2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(U.S.$ equivalent in thousands)Short-term Debt:Variable Rate (U.S.$)
    
    $
    5,945
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,945
    
    
    $
    5,945Average interest rate
    
    
    6.13
    %Long-term Debt:Variable Rate (U.S.$)
    
    $
    
    
    
    $
    290
    
    
    $
    289
    
    
    $
    287
    
    
    $
    280
    
    
    $
    163
    
    
    $
    1,309
    
    
    $
    1,309Average interest rate
    
    
    
    
    
    
    8.06
    %
    
    
    8.06
    %
    
    
    8.06
    %
    
    
    8.00
    %
    
    
    8.00
    %Fixed Rate (U.S.$)
    
    $
    
    
    
    $
    345
    
    
    $
    345
    
    
    $
    345
    
    
    $
    345
    
    
    $
    345
    
    
    $
    1,725
    
    
    $
    1,725Average interest rate
    
    
    
    
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %Variable Rate (Cdn.$)
    
    $
    
    
    
    $
    111
    
    
    $
    1,097
    
    
    $
    111
    
    
    
    
    
    
    
    
    
    
    $
    1,319
    
    
    $
    1,319Average interest rate
    
    
    
    
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %
 The tables below provide information about the Companys steel inventory that is sensitive to
changes in commodity prices, specifically steel prices. The tables present the carrying amount and
fair value as of the indicated date. March 31, 2005Carrying Amount
    
    Fair value(U.S.$ equivalent in thousands)Steel Inventories
    
    $
    4,631
    
    
    $
    4,631
 
 ITEM 4. 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 March 31,
2005, and, based on their evaluation, our principal executive and principal financial officers have
concluded that these controls and procedures are effective as of March 31, 2005, 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 first quarter ended March
31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting, except that we hired additional staff. 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 32




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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 February 2005, we acquired
Haines 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. Nine 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:  1.
    A lack of formalized accounting policies and procedures, including written procedures
for monthly, quarterly and annual closing of financial books and records.2.
    A lack of common systems or a common chart of accounts and the use of spreadsheets to
perform consolidations, which resulted in errors.3.
    Insufficient staff in the accounting and information
technology departments to handle non-routine transactions such as
acquisitions or finance transactions.4.
    Little if any review or oversight of the reporting process which has resulted in the
inability of the Company to detect material errors. The Company has experienced
significant difficulty in preparing accurate financial statements. The financial
statements presented to our Independent Registered Public Accounting Firm have included
numerous material errors.5.
    No process in place to ensure that the financial statements presented adequately
disclose information required by Generally Accepted Accounting Principles (GAAP).6.
    Formal reconciliations and supporting documentation are not prepared prior to the
financial statements being finalized.7.
    The Company has not adequately segregated duties within the accounting department.
Certain individuals are performing processes or controls that are incompatible with their
assigned roles. During our Independent Registered Public Accounting Firms audit, they
noted that the Controller and staff accountants have the ability to initiate and record
journal entries, prepare reconciliations and assist in the preparation of the financial
statements. In addition, these employees have the ability to process transactions and have
access to the general ledger system. The Company has not formally reviewed the activity
level controls of individuals with access to financial systems to ensure that duties are
adequately segregated.8.
    Certain individuals have access to all of the process applications used by the Company,
as well as the general ledger package, which raises concern over security access. These
employees have the ability to post transactions and adjustments within the accounting 33




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records of the Company. The Company does not have a formal process to ensure that
appropriate system access is granted.9.
    The Company does not have an adequate process in place to identify and ensure that
non-standard journal entries are subject to an appropriate level of review. In addition, our Independent Registered Public Accounting Firm has 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 on a timely basis. 
 PART II  OTHER INFORMATION 
 ITEM 1. 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Recent Sales of Unregistered Securities. 1. 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 34




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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. 2. 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, 35




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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 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 May 18, 2005: Payments to
    
    
    Payments toAffiliates*
    
    
    OthersUnderwriting discounts and commissions
    
    $
    
    
    
    $
    1,147,125Finders Fees
    
    
    
    
    

    
    Expenses paid to or for underwriters
    
    
    
    
    
    
    491,625Other
expenses (primarily legal, audit, registration fees and printing)
    
    
    50,000
    
    
    
    2,752,857
    **Total expenses
    
    $
    50,000
    
    
    $
    4,391,607
    **
   *
    Includes direct or indirect payments to directors and officers of the Company and their
associates, to persons owning ten percent or more of any class of equity securities of the issuer,
and to affiliates of the issuer. In March of 2005, the Board of Directors approved a payment of
$50,000 to Bainbridge Advisors in consideration of certain advisory
services rendered to the Company that were not originally
contemplated by the parties.**
    Estimated. The estimated net Offering proceeds to the Company after deducting the total estimated expenses
described above is approximately $11,946,000. The following table provides information concerning
the amount of the net Offering proceeds to the Company used for the following purposes through May
18, 2005: 36




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Payments to
    
    
    Payments toAffiliates*
    
    
    OthersConstruction of plant, building and
facilities
    
    $
    
    
    
    $
    Purchase and installation of machinery
and equipment
    
    
    
    
    
    
    Purchases of
real estate  Haines Road real estate
    
    
    
    
    
    
    371,000Acquisition of other business(es)
    
    
    
    
    
    
    6,099,000Repayment of indebtedness
    
    
    
    
    
    
    3,559,000Working capital
    
    
    
    
    
    
    Temporary investment  working capital
    
    
    
    
    
    
    1,917,000
    **Other purposes
    
    
    
    
    
    
    Total uses
    
    $
    
    
    
    $
    11,946,000
   *
    Includes direct or indirect payments to directors and officers of the Company and their
associates, to persons owning ten percent or more of any class of equity securities of the issuer,
and to affiliates of the issuer.**
    Estimated. The estimated 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, accounting and other professional fees incurred by the
Company in connection with the Offering, which are estimated to be $1,302,000 higher than
originally estimated. The Company plans to use the additional proceeds for capital expenditures or additional
working capital as business conditions dictate. However,
approximately $900,000 has been temporarily used to repay lines of
credit at subsidiaries, which may not be able to be reborrowed. ITEM 3. DEFAULTS UPON
SENIOR SECURITIES The
company is not in compliance with certain financial covenants with
its lending institutions, for which it has obtained non-binding
commitments to adjust such covenants and maintain compliance. 
 ITEM 5. OTHER INFORMATION Updates to Risk Factors. An investment in our common shares involves a high degree of risk. You should carefully
consider the specific factors listed our Annual Report onForm 10-Kfor the year ended December 31,
2004, as updated 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 these risks actually
occur, our business, financial condition or results of operations could be adversely affected. In 37




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such case, the trading price of our common shares could decline, and you may lose all or part of
your investment. Risks Relating to Our Business We and our acquired companies have a history of losses and may not become profitable in the future,
which would adversely affect the price of our common shares. Tarpon, the parent company, does not have any revenue generating operations. It operates
through its recently acquired operating subsidiaries, EWCO and Steelbank Tubular. From inception
on January 16, 2002 through March 31, 2005, Tarpon did not generate any revenues and incurred net
losses of approximately $5,021,000, including a net loss of approximately $1,995,000 in 2004 and a
net loss of approximately $1,610,000 in the first quarter of 2005. Tarpon has funded such losses and a portion
of its acquisition costs through equity investments and through borrowings paid from the proceeds
of our initial public offering. Tarpon has never been profitable and might never become
profitable. If we do become profitable, the market price of our common shares will likely decline. Our Haines Road mortgage financing is short-term and we might not be able to refinance or pay
this debt when it matures. On May 18, 2005, we completed the acquisition of the real estate of
Haines Road. We obtained bridge mortgage financing of $2,765,000 (Cdn $3,500,000). The bridge
financing is payable May 17, 2006. In the event that we are unable to replace the bridge financing
by May 17, 2006 we will be required to pay the outstanding
balance from available cash reserves which we might not have. If we
do not refinance or repay the loan, the premises could be repossessed by the lender, which would likely require us to discontinue
Haines Roads business for a significant period of time or even permanently. 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. Our level of indebtedness materially affects our operations and even our survival. As of March 31, 2005 our total consolidated indebtedness for borrowed money, including current
maturities, was approximately $10,298,000, not including the approximately $4,108,000 of new
mortgage financing added in May 18, 2005 in connection with the acquisition of the Haines Road real
estate. 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. Covenant restrictions in
our credit facilities may limit our ability to operate our business
and, since we are currently in default of several financial covenant
restrictions, 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. We are currently in default of the
financial covenants under the EWCO and Steelbank loan agreements,
which constitutes 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 or could subject us to
foreclosure on our assets. The lenders under the EWCO and Steelbank
loan facilities have provided a non-binding commitment to review such
covenants, but the defaults have not been waived nor have the
covenants been revised. As a result of the defaults, both loans would be
accelerated and the lenders could foreclose on the assets pledged as
security for the loans or could subject us to foreclosure on our
assets. 38




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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 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 March 31, 2005, each 1% increase in prime rates would result in
an approximate increase of $70,000 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 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. 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, 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:  1.
    A lack of formalized accounting policies and procedures, including written procedures
for monthly, quarterly and annual closing of financial books and records.2.
    A lack of common systems or a common chart of accounts and the use of spreadsheets to
perform consolidations, which resulted in errors.3.
    Little if any review or oversight of the reporting process which has resulted in the
inability of the Company to detect material errors. The Company has experienced
significant difficulty in preparing accurate financial statements. The financial
statements presented to our Independent Registered Public Accounting Firm have included
numerous material errors. 39




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4.
    No process in place to ensure that the financial statements presented adequately
disclose information required by Generally Accepted Accounting Principles (GAAP).5.
    Formal reconciliations and supporting documentation are not prepared prior to the
financial statements being finalized.6.
    The Company has not adequately segregated duties within the accounting department.
Certain individuals are performing processes or controls that are incompatible with their
assigned roles. During our Independent Registered Public Accounting Firms audit, they
noted that the Controller and staff accountants have the ability to initiate and record
journal entries, prepare reconciliations and assist in the preparation of the financial
statements. In addition, these employees have the ability to process transactions and have
access to the general ledger system. The Company has not formally reviewed the activity
level controls of individuals with access to financial systems to ensure that duties are
adequately segregated.7.
    Certain individuals have access to all of the process applications used by the Company,
as well as the general ledger package, which raises concern over security access. These
employees have the ability to post transactions and adjustments within the accounting
records of the Company. The Company does not have a formal process to ensure that
appropriate system access is granted.8.
    The Company does not have an adequate process in place to identify and ensure that
non-standard journal entries are subject to an appropriate level of review. In addition, our Independent Registered Public Accounting Firm has 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 on a timely basis. 40




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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. The volatile nature of steel prices could adversely affect our sales and operating profits. The cost of purchased steel for manufacturing our products represented approximately 70% of
EWCOs revenues in the first quarter of 2005 and approximately 76% of Steelbank Tubulars revenues
in the first quarter of 2005. 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 32% from the first quarter of 2004 to the first quarter of 2005, but decreased
approximately 7% from the fourth quarter of 2004 to the first quarter of 2005, and Haines Roads
average steel costs increased approximately 243% from the first quarter of 2004 to the first
quarter of 2005, and increased approximately 24% from the fourth quarter of 2004 to the first
quarter of 2005. The significant increase in the average cost of steel at Haines Road was due to
the increase in steel prices and write up in inventory to fair value
in connection with our acquisition, partially offset by the decline
in steel prices from the fourth quarter of 2004 to the first quarter
of 2005. 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. Lower steel costs often require us to lower the price of our products to meet
competitors prices, which decreases might be more than the decrease in steel prices and can
anticipate decreases in steel prices, either of which would adversely affect our gross profit
margins. 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 the first quarter of 2005, EWCO purchased approximately 45% in dollar value of its steel
from a total of four suppliers and Haines Road purchased approximately 46% of its steel from 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. 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 seven person sales force for a majority of our sales. Our sales force
accounted for approximately 94% of EWCOs sales in the first quarter of 2005 and 100% of Haines
Roads sales in the first quarter of 2005. Therefore, the loss of any of our sales employees may
have an adverse effect on our business, financial condition and results of operations. 41




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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.
SpaceRak products represented approximately $6,332,200, or approximately 45%, of Tarpons sales in
the first quarter of 2005, and approximately 44% of the SpaceRak sales were made through
distributors. If our distributors fail to market, promote and sell our products adequately, our
business, financial condition and results of operations would be adversely affected. Risks Relating to Our Common Shares The market price of our common shares could fluctuate significantly. If an active trading market for the common shares 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. 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 Risk Factors 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
from those projected in the forward-looking statements due to numerous factors, particularly those
discussed in Risk Factors in our Annual Report on Form 10-K/A (Amendment No. 1) for the year
ended December 31, 2004, as updated by the Risk Factors in this report. 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. 42




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ITEM 6. EXHIBITS Exhibit
    
    Description31.1
    
    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.
 43




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TARPON INDUSTRIES, INC.(Registrant)Dated: May 23, 2005
    By:
    /s/ James T. HouseJames T. HouseIts:  Senior Vice President, Chief Financial
Officer, Chief Accounting Officer, Treasurer and
Assistant Secretary (Duly Authorized and Principal
Financial Officer) 44




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EXHIBIT INDEX Exhibit
    
    Description31.1
    
    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.