**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-KSB/A**

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**(Amendment No. 1)**

 

**For the Year Ended December 31, 2003**

**Commission File No. 000-31267**

 

**IWT TESORO CORPORATION**

(Name of Small Business Issuer in ItsCharter)

 
| **NEVADA**                                                      | ** ** | **91-2048019**                          |
|-----------------------------------------------------------------|------------|-----------------------------------------|
| (State of Other Jurisdiction of Incorporation or  Organization) |       | (I.R.S. Employer Identification Number) |
|                                                            |       |                                    |
| **191 Post Road West, Suite 10, Westport,  Connecticut 06880**  |
| (Address of Principal Executive Offices and Zip Code)           |
|                                                            |       |                                    |
| **(203) 271-2770**                                              |
| (Issuer’s Telephone Number, Including Area  Code)          |

 

Securities registered under Section 12(b) of the Exchange Act: ** None**

 
| **Title of Each Class** | ** ** | **Name of Each Exchange on Which Registered** |
|-------------------------|------------|-----------------------------------------------|
| NONE                    |       | NONE                                          |

 

Securities registered underSection 12(g) of the Exchange Act:

**Common Stock, $.001 par value**

(Title of Class)

 

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

Yes  ý   No  o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B contained in this form, and no disclosure will becontained, to the best of issuer’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB. o

 

Check whether the registrant is an accelerated filer oYes  ýNo

 

State issuer’s revenues for its most recent fiscal year:  $ 32,659,546

 

State the aggregate market value of the voting stock held bynon-affiliates computed by reference to the price at which the stock was sold,or the average bid and asked prices of such stock, as of a date specifiedwithin the past 60 days:  $ 9,143,935.50

 

**APPLICABLE ONLY TO CORPORATE REGISTRANTS**

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date.  11,696,102 shares as of August 31, 2004

 

Transitional Small Business Disclosure Format (checkone)     Yes o   No ý

 

**DOCUMENTS INCORPORATED BY REFERENCE**

None

 

 

----

 

EXPLANATORY NOTE

 

This 10-KSB/A has been filed to restate the consolidated balance sheetsas of December 31, 2003, and the related consolidated statements ofoperations, stockholders’ equity, and cash flows for the year endedDecember 31, 2003.

 

----

 

**ITEM 7. FINANCIAL STATEMENTS**

 

**IWT TESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THE YEARS ENDED DECEMBER 31, 2003AND 2002**

 

 

**TABLE OF CONTENTS**

 
| Report of Independent Registered  Public Accounting Firm                    |   |
|-----------------------------------------------------------------------------|--------|
|                                                                        |   |
| Consolidated Balance Sheets  (restated)                                     |   |
|                                                                        |   |
| Consolidated Statements of Operations  (restated)                           |   |
|                                                                        |   |
| Consolidated Statements of Changes in  Stockholders’ Equity (restated) |   |
|                                                                        |   |
| Consolidated Statements of Cash Flows  (restated)                           |   |
|                                                                        |   |
| Notes to Consolidated Financial Statements                                  |   |

 

F-1

----

 

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of DirectorsIWT Tesoro Corporation and SubsidiariesWestport, CT

 

We have audited the accompanying consolidated balance sheets of IWTTesoro Corporation and Subsidiaries as of December 31, 2003 and 2002, andthe related consolidated statements of operations, changes in stockholders’equity, and cash flows for the years ended December 31, 2003 and2002.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the Public Company OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallconsolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of IWT TesoroCorporation and Subsidiaries as of December 31, 2003 and 2002, and theresults of its operations, and its cash flows for the years endedDecember 31, 2003 and 2002, in conformity with accounting principlesgenerally accepted in the United States of America.

 

As discussed in Note 18 to the accompanying consolidated financialstatements, the Company has restated the consolidated balance sheets as ofDecember 31, 2003, and the related consolidated statements of operations,stockholders’ equity, and cash flows for the year ended December 31, 2003.

 

 

KANTOR, SEWELL & OPPENHEIMER, PA

 

 

Hollywood, Florida

January 23, 2004 except as to Note 18, which is as ofAugust 12, 2004.

 

F-2

----

 

**IWT TESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER 31, 2003 AND 2002**

 

**Assets**

 
| ** **                                                                                                       | ** ** | **2003  Restated** | ** ** | **2002**  | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------|------------|
|                                                                                                             |       |               |       |      |       |
| Current assets                                                                                                   |       |               |       |      |       |
| Cash                                                                                                             |       | $                  | 867,361    |      | $          | 574,046 |   |
| Accounts receivable, net of allowance for  doubtful accounts of approximately $120,000 and $83,000, respectively |       | 4,907,705          |       | 2,875,532 |       |
| Inventories                                                                                                      |       | 13,058,839         |       | 6,047,876 |       |
| Note receivable                                                                                                  |       | 550,000            |       | —    |       |
| Prepaid expenses                                                                                                 |       | 754,289            |       | 286,820   |       |
| Deferred tax asset                                                                                               |       | 146,192            |       | 34,348    |       |
| Total current assets                                                                                             |       | 20,284,386         |       | 9,818,622 |       |
|                                                                                                             |       |               |       |      |       |
| Property and equipment, net                                                                                      |       | 4,217,268          |       | 2,712,422 |       |
|                                                                                                             |       |               |       |      |       |
| Other assets                                                                                                     |       |               |       |      |       |
| Deferred tax asset - non current                                                                                 |       | 101,205            |       | —    |       |
| Deposits                                                                                                         |       | 59,609             |       | 9,173     |       |
| Other receivables                                                                                                |       | 69,370             |       | 69,705    |       |
| Other assets                                                                                                     |       | 253,120            |       | 112,835   |       |
|                                                                                                             |       | 382,099            |       | 191,713   |       |
|                                                                                                             |       |               |       |      |       |
|                                                                                                             |       | $                  | 24,984,959 |      | $          | 12,722,757 |   |

 

The notes to consolidated financialstatements are an integral part of the above statement.

 

F-3

----

 

**IWT TESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2003 AND 2002**

 

**Liabilities and Stockholders’ Equity**

 
| ** **                                                                                                      | ** ** | **2003  Restated** | ** ** | **2002**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------|------------|
|                                                                                                            |       |               |       |      |       |
| Current liabilities                                                                                             |       |               |       |      |       |
| Accounts payable                                                                                                |       | $                  | 9,859,161  |      | $          | 5,403,816 |   |
| Accrued expenses and other liabilities                                                                          |       | 137,292            |       | 151,064   |       |
| Current portion of leases payable                                                                               |       | 63,151             |       | 47,222    |       |
| Current portion of notes payable -  unrelated parties                                                           |       | 42,719             |       | 48,779    |       |
| Total current liabilities                                                                                       |       | 10,102,323         |       | 5,650,881 |       |
|                                                                                                            |       |               |       |      |       |
| Deferred tax liability - non current                                                                            |       | 148,594            |       | —    |       |
| Long term leases payable                                                                                        |       | 149,183            |       | 108,438   |       |
| Long term notes payable - related parties                                                                       |       | 338,662            |       | 448,712   |       |
| Long term notes payable - unrelated parties                                                                     |       | 42,560             |       | 64,872    |       |
| Long term loan payable                                                                                          |       | 9,599,340          |       | 4,864,778 |       |
|                                                                                                            |       | 10,278,339         |       | 5,486,800 |       |
|                                                                                                            |       |               |       |      |       |
| Redeemable common stock (450,000 shares  issued and outstanding)                                                |       | —             |       | 1,073,160 |       |
|                                                                                                            |       |               |       |      |       |
| Stockholders’ equity                                                                                       |       |               |       |      |       |
| Preferred stock, $0.001 par value,  25,000,000 authorized; none issued                                          |       | —             |       | —    |       |
| Common stock, $0.001 par value, 100 million  shares authorized, 11,622,702 and 10,587,834 issued and oustanding |       | 11,623             |       | 10,588    |       |
| Additional paid in capital                                                                                      |       | 4,306,153          |       | 686,068   |       |
| Additional paid in capital - outstanding  options                                                               |       | 666,667            |       | —    |       |
| Retained earnings (deficit)                                                                                     |       | (380,146           | )          | (184,740  | )          |
|                                                                                                            |       | 4,604,297          |       | 511,916   |       |
|                                                                                                            |       |               |       |      |       |
|                                                                                                            |       | $                  | 24,984,959 |      | $          | 12,722,757 |   |

 

The notes to consolidated financialstatements are an integral part of the above statement.

 

F-4

----

 

**IWT TESORO CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFOPERATIONSYEARS ENDED DECEMBER 31, 2003 AND 2002**

 
| ** **                                                         | ** ** | **2003**

**Restated** | ** ** | **2002**   | ** ** |
|--------------------------------------------------------------------|------------|------------------------|------------|------------|------------|
| Revenue                                                            |       |                   |       |       |       |
|                                                               |       |                   |       |       |       |
| Sales, net of discounts and returns                                |       | $                      | 32,659,546 |       | $          | 25,387,708 |   |
| Cost of goods sold                                                 |       | 19,814,514             |       | 15,268,535 |       |
| Gross profit                                                       |       | 12,845,032             |       | 10,119,173 |       |
|                                                               |       |                   |       |       |       |
| Expenses                                                           |       |                   |       |       |       |
| Payroll                                                            |       | 5,460,251              |       | 3,841,761  |       |
| Delivery                                                           |       | 1,576,816              |       | 1,245,174  |       |
| Leases                                                             |       | 1,031,559              |       | 479,905    |       |
| General and administrative                                         |       | 749,054                |       | 637,202    |       |
| Compensation expense - stock options                               |       | 666,667                |       | —     |       |
| Sales                                                              |       | 660,937                |       | 211,396    |       |
| Depreciation                                                       |       | 634,984                |       | 422,435    |       |
| Professional fees                                                  |       | 388,342                |       | 150,085    |       |
| Repairs and maintenance                                            |       | 386,190                |       | 250,378    |       |
| Insurance                                                          |       | 353,752                |       | 324,699    |       |
| Travel and entertainment                                           |       | 309,009                |       | 104,831    |       |
| Bad debts                                                          |       | 204,581                |       | 3,082      |       |
| Advertising                                                        |       | 120,939                |       | 203,838    |       |
|                                                               |       | 12,609,330             |       | 7,874,786  |       |
| Income from operations                                             |       | 235,702                |       | 2,244,387  |       |
|                                                               |       |                   |       |       |       |
| Other income/(expenses)                                            |       |                   |       |       |       |
| Interest expense                                                   |       | (480,139               | )          | (328,920   | )          |
| Other expense, net                                                 |       | (15,424                | )          | (15,788    | )          |
|                                                               |       | (495,563               | )          | (344,708   | )          |
|                                                               |       |                   |       |       |       |
| Income (loss) before taxes                                         |       | (259,861               | )          | 1,899,679  |       |
|                                                               |       |                   |       |       |       |
| Income taxes - current                                             |       | —                 |       | —     |       |
| Income tax (expense) benefit - deferred                            |       | 64,455                 |       | 34,348     |       |
| Net income                                                         |       | $                      | (195,406   | )          | $          | 1,934,027 |   |
|                                                               |       |                   |       |       |       |
| Earnings per share                                                 |       |                   |       |       |       |
| Basic                                                              |       | $                      | 0.02       |       | $          | 0.19 |   |
| Diluted                                                            |       | $                      | 0.02       |       | $          | 0.19 |   |
|                                                               |       |                   |       |       |       |
| Average number of common and common  equivalent shares outstanding |       |                   |       |       |       |
| Basic                                                              |       | 11,197,665             |       | 10,845,775 |       |
| Diluted                                                            |       | 11,509,028             |       | 10,845,775 |       |

 

The notes to consolidated financialstatements are an integral part of the above statement.

 

F-5

----

 

**IWT TESORO CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGESIN STOCKHOLDERS’ EQUITYYEARS ENDED DECEMBER 31, 2003 AND 2002**

 
| ** **                                                        | ** ** | **Common Stock** | ** ** | **Additional  Paid in** | ** ** | **Subscription** | ** ** | **Retained  Earnings** | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------|------------|------------------|------------|-------------------------|------------|------------------|------------|------------------------|------------|---------------|------------|
| ** **                                                        | ** ** | **Shares**       | ** ** | **Amount**              | ** ** | **Capital**      | ** ** | **Receivable**         | ** ** | **(Deficit)** | ** ** | **TOTAL** | ** ** |
| Balances, January 1, 2002                                    |       | 9,000,000        |       | $                       | 9,000      |             | $          | 116,400                |       | $             | (84,000    | ) | $ | 830,582 |   | $ | 871,982 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Distributions, September 30, 2002                            |       | —           |       | —                  |       | —           |       | —                 |       | (1,864,020    | )          | (1,864,020 | ) |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Payment of subscription receivable                                |       | —           |       | —                  |       | —           |       | 84,000                 |       | —        |       | 84,000 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Net income, nine months ended  September 30, 2002            |       | —           |       | —                  |       | —           |       | —                 |       | 2,118,767     |       | 2,118,767 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Balance September 30, 2002 - before  recapitalization        |       | 9,000,000        |       | 9,000                   |       | 116,400          |       | —                 |       | 1,085,329     |       | 1,210,729 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Recapitalization on October 1, 2002                          |       | 1,800,000        |       | 1,800                   |       | 972,471          |       | —                 |       | (1,085,329    | )          | (111,058 | ) |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Balance after recapitalization on  October 1, 2002           |       | 10,800,000       |       | 10,800                  |       | 1,088,871        |       | —                 |       | —        |       | 1,099,672 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Reclassification of redeemable stock                              |       | (450,000         | )          | (450                    | )          | (60,086          | )          | —                 |       | —        |       | (60,536 | ) |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Issuance of shares in exchange for legal  services                |       | 15,000           |       | 15                      |       | 40,635           |       | —                 |       | —        |       | 40,650 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Issuance of shares to employees, directors  and consultants (SIP) |       | 134,500          |       | 135                     |       | 364,360          |       | —                 |       | —        |       | 364,495 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Issuance of shares - private offering (See  Note 10)              |       | 83,334           |       | 83                      |       | 249,917          |       | —                 |       | —        |       | 250,000 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Exercise of warrants                                              |       | 5,000            |       | 5                       |       | 14,995           |       | —                 |       | —        |       | 15,000 |   |
|                                                              |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Sub-total                                                         |       | 10,587,834       |       | $                       | 10,588     |             | $          | 1,698,692              |       | $             | —     |   | $ | — |   | $ | 1,709,280 |   |

 

The notes to consolidated financialstatements are an integral part of the above statement.

 

F-6

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| ** **                                           | ** ** | **Common Stock** | ** ** | **Additional  Paid in** | ** ** | **Subscription** | ** ** | **Retained  Earnings** | ** ** | ** **    | ** ** |
|------------------------------------------------------|------------|------------------|------------|-------------------------|------------|------------------|------------|------------------------|------------|---------------|------------|
| ** **                                           | ** ** | **Shares**       | ** ** | **Amount**              | ** ** | **Capital**      | ** ** | **Receivable**         | ** ** | **(Deficit)** | ** ** | **TOTAL** | ** ** |
|                                                 |       | 10,587,834       |       | $                       | 10,588     |             | $          | 1,698,692              |       | $             | —     |   | $ | — |   | $ | 1,709,280 |   |
|                                                 |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Accretion of redeemable stock                        |       | —           |       | —                  |       | (1,012,624       | )          | —                 |       | —        |       | (1,012,624 | ) |
|                                                 |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Net loss, three months ended  December 31, 2002 |       | —           |       | —                  |       | —           |       | —                 |       | (184,740      | )          | (184,740 | ) |
|                                                 |       |             |       |                    |       |             |       |                   |       |          |       |   |   |
| Balance, December 31, 2002                      |       | 10,587,834       |       | $                       | 10,588     |             | $          | 686,068                |       | $             | —     |   | $ | (184,740 | ) | $ | 511,916 |   |

 

The notes to consolidated financialstatements are an integral part of the above statement.

 

F-7

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**IWT TESORO CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYYEAR ENDED DECEMBER 31, 2003**

 
| ** **                                                                    | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | **Additional**      | ** ** | ** **    | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------|------------|-------------|------------|-----------------|------------|---------------------|------------|---------------|------------|------------|------------|
| ** **                                                                    | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**  | ** ** | **Paid in Capital** | ** ** | **Retained**  | ** ** | ** ** | ** ** |
| ** **                                                                    | ** ** | **Common Stock** | ** ** | **Paid in** | ** ** | **Outstanding** | ** ** | **Earnings**        | ** ** | ** **    | ** ** |
| ** **                                                                    | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Options**         | ** ** | **(Deficit)** | ** ** | **TOTAL**  | ** ** |
| Balances, January 1, 2003                                                |       | 10,587,834       |       | $           | 10,588     |            | $          | 686,068             |       | $             | —     |       | $          | (184,740 | ) | $ | 511,916 |   |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Cancellation of stock repurchase agreement                                    |       | 450,000          |       | 450         |       | 1,072,710       |       | —              |       | —        |       | 1,073,160  |       |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Issuance of shares - private offering (See  Note 10)                          |       | 136,668          |       | 137         |       | 409,863         |       | —              |       | —        |       | 410,000    |       |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Exercise of warrants                                                          |       | 80,000           |       | 80          |       | 239,920         |       | —              |       | —        |       | 240,000    |       |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Issuance of shares to employees, and  directors (SIP)                         |       | 16,000           |       | 16          |       | 43,344          |       | —              |       | —        |       | 43,360     |       |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Issuance of shares - public offering, net  of offering expenses (See Note 10) |       | 250,000          |       | 250         |       | 1,292,250       |       | —              |       | —        |       | 1,292,500  |       |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Issuance of shares - private offering (See  Note 10)                          |       | 100,000          |       | 100         |       | 549,900         |       | —              |       | —        |       | 550,000    |       |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Issuance of shares to employees (SIP)                                         |       | 2,200            |       | 2           |       | 12,098          |       | —              |       | —        |       | 12,100     |       |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Officers performance based stock options                                      |       | —           |       | —      |       | —          |       | 666,667             |       | —        |       | 666,667    |       |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Net loss, for the year (restated)                                             |       | —           |       | —      |       | —          |       | —              |       | (195,406      | )          | (195,406   | )          |
|                                                                          |       |             |       |        |       |            |       |                |       |          |       |       |       |
| Balance, December 31, 2003 (restated)                                    |       | 11,622,702       |       | $           | 11,623     |            | $          | 4,306,153           |       | $             | 666,667    |       | $          | (380,146 | ) | $ | 4,604,297 |   |

 

The notes to consolidated financialstatements are an integral part of the above statement.

 

F-8

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**IWT TESORO CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2003 AND 2002**

 
| ** **                                                                                          | ** ** | **2003**     | ** ** | ** **  | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------|------------|-------------|------------|
| ** **                                                                                          | ** ** | **Restated** | ** ** | **2002**    | ** ** |
| Cash flows from operating activities:                                                               |       |         |       |        |       |
| Net Income (loss)                                                                                   |       | $            | (195,406   | )           | $          | 1,934,027 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities: |       |         |       |        |       |
| Depreciation                                                                                        |       | 634,983      |       | 422,435     |       |
| Loan amortization cost                                                                              |       | 7,083        |       | 26,575      |       |
| Loss (gain) on sales of assets                                                                      |       | 18,757       |       | (5,979      | )          |
| Bad debts                                                                                           |       | 204,581      |       | 3,085       |       |
| Deferred taxes                                                                                      |       | (64,455      | )          | (34,348     | )          |
| Impairment of long lived assets                                                                     |       | 66,250       |       |        |       |
| Compensation in exchange for stock and  options                                                     |       | 722,128      |       | 405,145     |       |
| (Increase) decrease in operating assets                                                             |       |         |       |        |       |
| Accounts receivable                                                                                 |       | (2,236,753   | )          | (786,221    | )          |
| Inventories                                                                                         |       | (7,010,963   | )          | (1,062,449  | )          |
| Prepaid expenses                                                                                    |       | (467,469     | )          | (263,798    | )          |
| Other assets                                                                                        |       | (131,079     | )          | (16,640     | )          |
| Increase (decrease) in operating  liabilities                                                       |       |         |       |        |       |
| Accounts payable and accrued expenses                                                               |       | 4,441,574    |       | 1,242,495   |       |
| Total adjustments                                                                                   |       | (3,815,363   | )          | (69,700     | )          |
| Net cash provided by (used in) operating  activities                                                |       | (4,010,769   | )          | 1,864,327   |       |
|                                                                                                |       |         |       |        |       |
| Cash flows from investing activities:                                                               |       |         |       |        |       |
| Proceeds from sale of property                                                                      |       | 20,000       |       | 11,000      |       |
| Acquisition of property and equipment                                                               |       |         |       |        |       |
| Displays and sample boards                                                                          |       | (1,239,449   | )          | (908,238    | )          |
| Other property and equipment                                                                        |       | (914,485     | )          | (58,049     | )          |
| Net cash used in investing activities                                                               |       | (2,133,934   | )          | (955,287    | )          |
|                                                                                                |       |         |       |        |       |
| Cash flows from financing activities:                                                               |       |         |       |        |       |
| Proceeds from issuance of stocks, net                                                               |       | 1,942,500    |       | 349,000     |       |
| Proceeds from new borrowings                                                                        |       | 42,396,903   |       | 26,010,639  |       |
| Proceeds from loans from related party                                                              |       | —       |       | 10,640      |       |
| Distributions to stockholders                                                                       |       | —       |       | (1,864,020  | )          |
| Payments on stockholder loan                                                                        |       | (110,050     | )          | (25,000     | )          |
| Payments on new borrowings                                                                          |       | (37,662,341  | )          | (25,105,628 | )          |
| Principal payments on notes payable and  capital leases                                             |       | (128,994     | )          | (113,125    | )          |
| Net cash provided by (used in) financing  activities                                                |       | 6,438,018    |       | (737,494    | )          |
|                                                                                                |       |         |       |        |       |
| Net increase in cash and cash equivalents                                                           |       | 293,315      |       | 171,546     |       |
|                                                                                                |       |         |       |        |       |
| Cash and cash equivalents, beginning of  period                                                     |       | 574,046      |       | 402,500     |       |
|                                                                                                |       |         |       |        |       |
| Cash and cash equivalents, end of period                                                            |       | $            | 867,361    |        | $          | 574,046 |   |

 

The notes to consolidated financialstatements are an integral part of the above statement.

 

F-9

----

 
| ** **                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|
|                                                |       |     |       |     |       |
| Supplemental disclosures of cash flow  information: |       |     |       |     |       |
|                                                |       |     |       |     |       |
| Cash paid during the period for:                    |       |     |       |     |       |
|                                                |       |     |       |     |       |
| Interest expense                                    |       | $        | 473,056    |     | $          | 302,345 |   |
|                                                     |            |          |            |          |            |  |  |

 

The notes to consolidated financialstatements are an integral part of the above statement.

 

F-10

----

 

**IWT TESORO CORPORATION AND SUBSIDIARIES****NOTES TOCONSOLIDATED FINANCIAL STATEMEN****TS****FOR THE YEARS ENDED DECEMBER 31, 2003 AND2002**

 

**NOTE 1****                                                    SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

Nature of Operations

 

IWT Tesoro Corporation was incorporated in the state of Nevada on May3, 2000 as Ponca Acquisition Corporation. On September 23, 2002, the Company changed the name of PoncaAcquisition Corporation to IWT Tesoro Corporation.

 

On October 1, 2002, IWT Tesoro Corporation (an inactive publiclyheld company) acquired 100% of the outstanding stock of International WholesaleTile, Inc. (IWT) in exchange for 83% of its outstanding common stock in atransaction accounted for as a recapitalization of IWT.

 

International Wholesale Tile, Inc. (IWT) is a wholesale distributor ofimported ceramic, porcelain, and stone tile, dealing mainly in imported floor& wall tiles.  IWT Tesoro International, Ltd. (ITIL) was setup as a foreign subsidiary, to be based in Bermuda to handle future operationsof foreign subsidiaries.  IWT TesoroTransport, Inc. (ITTI) was initially formed to be a transport broker.  ITTI has been relicensed as a common carrierfor the overland transport of tile from Florida to destinations within theUnited States and return shipments of other freight back to Florida.

 

The consolidated financial statements include the accounts of IWTTesoro Corporation, the parent company, and its wholly-owned subsidiaries,International Wholesale Tile, Inc., IWT Tesoro Transport, Inc. and IWT TesoroInternational, Inc.  Significantintercompany accounts and transactions have been eliminated.  IWT Tesoro Corporation and Subsidiaries arehereinafter referred to as “the Company.”

 

Accounting Estimates

 

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments purchased withan original maturity of three months or less to be cash equivalents.

 

Accounts Receivable

 

Accounts receivable are stated at the face amount net of allowance fordoubtful accounts.  Generally acceptedaccounting principles require that the allowance method be used to reflect baddebts.  A provision for doubtful accountshas been established to reflect an allowance for uncollectible amounts.

 

Inventories

 

Inventories consisting of tiles are valued at the lower of cost ormarket.  Cost is determined by thefirst-in, first-out method (FIFO).  TheCompany includes inventory in transit as an asset of the company becausemerchandise overseas is purchased FOB shipping point.  Title passes to the Company when merchandiseleaves the factory.

 

F-11

----

 

Property, Plant and Equipment

 

Property, plant and equipment are stated at cost. Depreciation iscomputed principally by the straight-line method over the estimated usefullives.  Expenditures for maintenance, repairs,and minor replacements are charged to expense as incurred.  Renewals and betterments are capitalized.

 

Income Taxes

 

The Company accounts for income taxes under Financial AccountingStandards Board (FASB) Statement No. 109, *Accountingfor Income Taxes*.  SFAS No.109 is an asset and liability approach that requires the recognition ofdeferred tax assets and liabilities for the expected future tax consequences ofevents that have been recognized in the financial statements or tax returns.(See Note 9)

 

Revenue Recognition

 

Revenues are recognized when products are shipped through commoncarrier (FOB shipping point with freight allowed in most orders), or whenproducts are received and accepted by customer if delivered by company (FOBdestination).  Title passes to thecustomer at the FOB point (shipping or destination).  Customers have the right to returnmerchandise within 30 days of the date of shipment.  The Company did not establish an allowancefor return because they are infrequent, represent a small dollar amount andoccur over a fairly short time period following the sale.

 

Long Lived Assets

 

The Company continually evaluates the carrying value of property andequipment to determine whether there are any impairment losses.  If indicators of impairment are present, andfuture undiscounted cash flows are not expected to be sufficient to recover theassets’ carrying amount, an impairment loss would be charged to operations inthe period identified based on the difference between the carrying value andthe fair value of the asset.

 

No reduction for impairment of long-lived assets was necessary atDecember 31, 2003 or 2002.

 

Stock Options

 

The Company elected to account for stock options issued to employees inaccordance with Accounting Principles Board Opinion No. 25**(APB Opinion No. 25) *Accounting For Stock Issued to Employees*and related interpretations, which established financial accounting andreporting for compensation cost of stock issued to employees throughnon-variable plans, variable plans, and non-compensatory plans, and accountsfor stock options and warrants issued to non-employees in accordance with SFAS123, *Accounting for Stock-Based Compensation*,which established a fair value method of accounting for stock compensationplans with employees and others.

 

In accordance with SFAS No. 123, for optionsissued to employees, the Company has elected to account for these stock optionsunder APB No. 25 and related interpretations in accounting for its plan.  Accordingly, no compensation costs have beenrecognized for options issued under the plan as of December 31, 2003 and2002.

 

F-12

----

 

In accordance with SFAS No. 123, for optionsissued to employees, the Company has elected to account for these stock optionsunder APB No. 25 and related interpretations in accounting for its plan.  Accordingly, no compensation costs have beenrecognized for options issued under the plan as of December 31, 2003 and2002.

 

Had compensation costs for the Company’sstock option been determined on the fair market value at the grant dates forthe options, consistent with Statement of Accounting Standards No. 123, *Accounting for Stock Based Compensation*(Statement No. 123), the Company’s results of operations for the years endedDecember 31, 2003 and 2002 would have changed to the pro-forma amountsindicated.

 
| ** **                                                                                                                          | ** ** | **2003**          | ** ** | **2002**          | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                                                                          | ** ** | **(as restated)** | ** ** | **(as reported)** | ** ** | ** ** | ** ** |
|                                                                                                                                |       |              |       |              |       |   |   |
| Net income  (loss)                                                                                                                  |       | $                 | (195,406   | )                 | $          | 436,306 |   | $ | 1,934,027 |   |
| Add: Stock  based employee compensation cost, net of related tax effects, included in the  determination of net income as reported  |       | 620,922           |       | 55,460            |       | 234,355 |   |
| Less:  Stock based employee compensation cost, net of related tax effects,  determined under fair value based method for all awards |       | (620,922          | )          | (55,460           | )          | (295,656 | ) |
|                                                                                                                                |       |              |       |              |       |   |   |
| Pro-forma net income (loss)                                                                                                         |       | $                 | (195,406   | )                 | $          | 436,306 |   | $ | 1,872,726 |   |
|                                                                                                                                |       |              |       |              |       |   |   |
| Net income (loss) per share - basic                                                                                                 |       |              |       |              |       |   |   |
| As reported                                                                                                                         |       | $                 | (0.02      | )                 | $          | 0.04 |   | $ | 0.18 |   |
|                                                                                                                                |       |              |       |              |       |   |   |
| Pro-forma                                                                                                                           |       | $                 | (0.02      | )                 | $          | 0.04 |   | $ | 0.18 |   |
|                                                                                                                                |       |              |       |              |       |   |   |
| Net income (loss) per share - diluted                                                                                               |       |              |       |              |       |   |   |
| As reported                                                                                                                         |       | $                 | (0.02      | )                 | $          | 0.04 |   | $ | 0.18 |   |
|                                                                                                                                |       |              |       |              |       |   |   |
| Pro-forma                                                                                                                           |       | $                 | (0.02      | )                 | $          | 0.04 |   | $ | 0.18 |   |

 

Advertising

 

Advertising costs are charged to operations in the year incurred andwere $120,939 and $203,838 for the years ended December 31, 2003 and 2002,respectively.

 

Shipping and Handling Expenses

 

The Company offers free delivery on sales over 100 sq. ft. which is thebulk of the sales, therefore most invoices billed to customers do not includeshipping and handling charges.  Whenshipping and handling charges are billed to customers, they are included inrevenue.  The cost incurred to ship theproducts to customers through common carriers is included in the Statement ofOperations under Delivery Expense. At December 31, 2003 and 2002 the totalamount of Delivery Expense was $1,576,816 and $1,245,174, respectively.

 

F-13

----

 

Cost of Goods Sold

 

The Company includes in cost of goods sold the following expenses: costof merchandise sold, inventory adjustments, in-bound freight, duty and fees anddiscounts taken. At December 31, 2003 and 2002 the total amount of cost ofgoods sold was $19,814,514 and $15,268,535, respectively.

 

Earnings per Share

 

Basic earnings per share are computed based on the weighted averagenumber of common shares outstanding during each year.

 

Diluted earnings per share are computed based on the weighted averagenumber of common shares outstanding plus all potential dilutive common sharesoutstanding (stock options) during each year.

 

At December 31, 2002 all common stock equivalents wereantidilutive and therefore diluted earnings per share equaled basic earningsper share.

 

At December 31, 2003 and 2002, the total number of additional sharesthat could potentially dilute basic EPS in the future, but were not included inthe computation of diluted EPS because of their antidilutive effect, was350,000 and 560,000, respectively.

 

Concentration of Credit Risk

 

Financial instruments which potentially subject the Company toconcentrations of credit risk consists of cash on deposit with two financialinstitutions amounting to $867,361 at December 31, 2003, which was insuredfor up to $100,000 per financial institution by the U.S. Federal DepositInsurance Corporation.

 

The Company believes concentration of accounts receivable credit riskare limited due to the number of customers. It is the policy of management to obtain detailed credit evaluations ofcustomers and establish credit limits as required.  The Company routinely assesses the financialstrength of its customers.  Outstandingaccounts receivable are reviewed at the end of each reporting period, as wellas the bad debt write-offs experienced in the past, and establish an allowancefor doubtful accounts for uncollectible amounts.  There is no disproportionate concentration ofcredit risk.  The Company purchasedcredit insurance for specific customers who purchase bulk materials and areoffered extended terms.

 

Accounting Pronouncements

 

Statement No. 144, *Accounting forthe Impairment or Disposal of Long-Lived Assets* supersedes StatementNo. 121, *Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed of* (SFASNo. 121).  Though it retains the basicrequirements of SFAS No. 121 regarding when and how to measure an impairmentloss, SFAS No. 144 provides additional implementation guidance. SFAS No. 144excludes goodwill and intangibles not being amortized among other exclusions.  SFAS No. 144 also supersedes the provisionsof APB No. 30, *Reporting the Results ofOperations*, pertaining to discontinued operations.  Separate reporting of a discontinuedoperation is still required, but SFAS No. 144 expands the presentation toinclude a component of an entity, rather than strictly a business segment asdefined in SFAS No. 131, *Disclosures aboutSegments of an Enterprise and Related Information*.

 

F-14

----

 

SFAS No. 144 also eliminates the current exemption to consolidationwhen control over a subsidiaries is likely to be temporary.  This statement is effective for all fiscalyears beginning after December 15, 2001. The Company believes that the implementation of SFAS No. 144 did nothave a material effect on the Company’s financial position, results ofoperations or liquidity.

 

In December 2002, the FASB issued SFAS No. 148, *Accounting for Stock-Based Compensation – Transitionand Disclosure,* which amended SFAS No. 123, *Accounting for Stock-Based Compensation.*  The new standard provides alternative methodsof transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation.  Additionally, the statement amends thedisclosure requirements of SFAS No. 123 to require prominent disclosures in theannual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used in reportedresults.  This statement is effective forfinancial statements for fiscal years ending after December 15, 2002.  In compliance with SFAS No. 148, the Companyhas elected to continue to follow the intrinsic value method in accounting forits stock-based employee compensation arrangement as defined by APB No. 25.

 

**NOTE 2****                                                    FAIRVALUE OF FINANCIAL INSTRUMENTS**

 

The carrying values of cash and cash equivalents, accounts receivable,accounts payable and short-term debt approximate fair value.  The fair value of long-term debt wasestimated by discounting the future cash flow using current borrowing rates forsimilar types and maturities of debt, except for the revolving creditagreements with floating rates, for which the carrying amounts were considereda reasonable estimate of fair value.

 

Debt:

The fair value and carrying amount of long-term debt was as follows:

 
| ** **      | ** ** | **December 31** | ** ** |
|-----------------|------------|----------------------|------------|
| ** **      | ** ** | **2003**             | ** ** | **2002** | ** ** |
|            |       |                 |       |   |   |
| Fair Value      |       | $                    | 9,890,702  |   | $ | 5,162,608 |   |
| Carrying amount |       | $                    | 10,129,745 |   | $ | 5,486,800 |   |

 

**NOTE 3****                                                    INVENTORIES**

 

Inventories consisted of the following:

 
| ** **           | ** ** | **December 31** | ** ** |
|----------------------|------------|----------------------|------------|
| ** **           | ** ** | **2003**             | ** ** | **2002** | ** ** |
|                 |       |                 |       |   |   |
| Tiles                |       | $                    | 11,102,115 |   | $ | 4,692,974 |   |
| Inventory in transit |       | 1,956,724            |       | 1,354,902 |   |
|                 |       |                 |       |   |   |
|                 |       | $                    | 13,058,839 |   | $ | 6,047,876 |   |

 

F-15

----

 

Inventory in transit consists of merchandise purchased overseas, whichis not yet received in the warehouse. The Company obtains legal title at the shipping point.  Inventory cost includes the purchase priceand in-bound freight.

 

**NOTE 4****                                                    NOTERECEIVABLE**

 

The note receivable is a promissory note for $550,000.  The note bears interest at 3% per year with amaturity date of June 30, 2004. (See Note 10)  The note was paid in full in March 2004.

 

**NOTE 5****                                                    PROPERTYAND EQUIPMENT**

 

Property and equipment consisted of the following:

 
| ** **                    | ** ** | **December 31** | ** ** |
|-------------------------------|------------|----------------------|------------|
| ** **                    | ** ** | **2003**             | ** ** | **2002** | ** ** |
|                          |       | **(as Restated)**    |       |   |   |
| Furniture and fixtures        |       | $                    | 307,235    |   | $ | 89,227 |   |
| Machinery and equipment       |       | 477,996              |       | 326,165 |   |
| Vehicles                      |       | 211,215              |       | 207,071 |   |
| Display boards                |       | 1,098,199            |       | 607,978 |   |
| Sample boards                 |       | 3,013,950            |       | 2,379,533 |   |
| Computer equipment            |       | 323,010              |       | 131,407 |   |
| Leasehold improvements        |       | 409,125              |       | 108,220 |   |
|                          |       |                 |       |   |   |
|                          |       | 5,847,460            |       | 3,849,601 |   |
| Less accumulated depreciation |       | (1,630,192           | )          | (1,137,179 | ) |
|                          |       |                 |       |   |   |
|                          |       | $                    | 4,217,268  |   | $ | 2,712,422 |   |

 

Depreciation of property and equipment charged to operations amountedto $634,984 and $422,435, for the years December 31, 2003 and 2002,respectively. (See Note 8)

 

F-16

----

 

**NOTE 6****                                                    NOTESPAYABLE**

 

The Company has outstanding notes payable as follows:

 
| ** **                                                                                                                                                                              | ** ** | **December 31** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                              | ** ** | **2003**             | ** ** | **2002** | ** ** |
| Notes Payable – Related Parties                                                                                                                                                    |       |                 |       |   |   |
|                                                                                                                                                                                    |       |                 |       |   |   |
| Notes payable to three majority  stockholder; interest rate 10% per year; due December 31, 2025; no  prepayment penalty; subject to Subordination Agreement of new line of credit. |       | $                    | 338,662    |   | $ | 448,712 |   |
|                                                                                                                                                                                         |            |                      |            |  |  |  |  |

 

Interest expense related to these loans was $35,235 and $56,532 for theyears ended December 31, 2003 and 2002, respectively.

 
| ** **                                                                                                                                                                               | ** ** | **December 31** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                               | ** ** | **2003**             | ** ** | **2002** | ** ** |
| Notes Payable – Unrelated Parties                                                                                                                                                   |       |                 |       |   |   |
|                                                                                                                                                                                     |       |                 |       |   |   |
| Various equipment notes, payable in monthly  installments ranging from $882 to $1,457; maturing September 2004  through December 2005; interest rates ranging from 0 to 8.95%. |       | $                    | 85,279     |   | $ | 113,652 |   |
|                                                                                                                                                                                     |       |                 |       |   |   |
| Less current portion                                                                                                                                                                     |       | (42,719              | )          | (48,780 | ) |
|                                                                                                                                                                                     |       |                 |       |   |   |
|                                                                                                                                                                                     |       | $                    | 42,560     |   | $ | 64,872 |   |

 

Interest expense related to these loans was $6,763 and $9,361 for theyears ended December 31, 2003 and 2002, respectively.

 

Maturities of long-term debt are as follows:

 
| 2004       |   | $       | 42,719  |   |
|------------|--------|---------|---------|--------|
| 2005       |   | 26,410  |    |
| 2006       |   | 8,528   |    |
| 2007       |   | 7,622   |    |
| 2008       |   | 0       |    |
| Thereafter |   | 338,662 |    |
|       |   |    |    |
|       |   | $       | 423,941 |   |

 

F-17

----

 

**NOTE 7****                                                    LINEOF CREDIT**

 

An existing loan and security agreement for aline of credit was restated effective November 13, 2002, whereas theamount of the maximum credit was increased from $5,000,000 to $7,500,000.  The average interest rate was about 5% forthe year ended December 31, 2002, continuing through September 9,2003.  IWT owed $4,864,778 on this creditline at December 31, 2002.

 

On September 10, 2003, the Companyentered into a new loan and security agreement with a financial institution fora revolving line of credit with a maximum limit of $17,000,000.  The agreement specifies that proceeds fromthis revolving credit loan must be used solely to satisfy the Company’sprevious existing line of credit in the amount of $7,288,903, and for generalworking capital needs.  All present andfuture assets of the Company collateralize this loan. The rate of interest ineffect for this agreement is calculated with reference to the Base Rate and/orLIBOR (London Interbank Offered Rate). The balance due at December 31, 2003 was $9,599,340.

 

Base Rate advances bear a fluctuatinginterest rate per annum equal to prime plus 0.50%.  LIBOR advances bear a fixed rate per annumequal to 3.00% plus the LIBOR for the applicable interest period.  At December 31, 2003 the Base Rate andthe LIBOR rate were 4.50% and 4.19%, respectively.

 

The loan and security agreement containscertain amended and restated covenants, which include financial covenants thatrequire the Company to maintain a certain leverage ratio, a required minimumfixed charge coverage ratio, and a certain inventory turnover ratio.  At December 31, 2003, the Company is incompliance with all required covenants, as amended and restated in agreementwith the financial institution.

 

For the years ended December 31, 2003 and 2002, interest expenserelated to the credit linesamounted to $413,164 and $227,022, respectively.  Interest expense at December 31, 2003includes a termination fee of $75,000 assessed for prepayment of the priorcredit line.

 

The Company incurred a closing fee of $85,000for the new revolving line of credit, which was deferred and will be amortizedusing the straight-line method over the 3-year life of the loan, with a chargeto interest expense.  A total of $7,083was amortized during the year ended December 31, 2003.

 

**NOTE 8****                                                    LEASES**

 

Capital Leases

 

The Company has various capital leases included in property andequipment (See Note 5) which are summarized as follows:

 
| ** **                                | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
|                                      |       |     |       |     |       |
| Equipment                                 |       | $        | 394,326    |     | $          | 266,672 |   |
| Less:  Accumulated depreciation |       | (94,655  | )          | (58,724  | )          |
|                                      |       |     |       |     |       |
| Net assets under capital leases           |       | $        | 299,671    |     | $          | 207,948 |   |

 

F-18

----

 

Operating Leases

 

The Company leases office and warehouse space under a non-cancelableoperating lease, which has an initial term in excess of one year.  In May 2003, the Company took occupancy of anew warehouse and office facility in Palm City, Florida with a combined totalof 147,000 square feet of space.  Inaddition, the Company entered into a new lease agreement for over 48,000 squarefeet of warehouse space at the old location, and a one-year sub-lease agreementfor 20,000 square feet of warehouse space was signed effective August 1st,2003. The Company also leases office space in Westport, Connecticut for itscorporate headquarters.

 

At December 31, 2003, future minimum annual lease payments underoperating and capital leases are as follows:

 
| ** ** | ** ** | **Operating  Lease** | ** ** | **Capital  Leases** | ** ** |
|------------|------------|----------------------|------------|---------------------|------------|
|       |       |                 |       |                |       |
| 2004       |       | $                    | 908,639    |                | $          | 63,151 |   |
| 2005       |       | 851,887              |       | 63,586              |       |
| 2006       |       | 872,437              |       | 49,127              |       |
| 2007       |       | 893,800              |       | 30,175              |       |
| 2008       |       | 915,650              |       | 6,295               |       |
| Thereafter |       | 4,451,373            |       | 0                   |       |
|       |       |                 |       |                |       |
|       |       | $                    | 8,893,786  |                | $          | 212,334 |   |

 

Total lease expense under operating leases was $1,031,559 and $479,905for the years ended December 31, 2003 and 2002, respectively.

 

Total interest expense under capital leases was $18,075 and $9,429 forthe years ended December 31, 2003 and 2002, respectively.

 

**NOTE 9****                                                    INCOMETAXES**

 

At December 31, 2003 the Company had a federal net operating losscarryforward of approximately $686,000 in large part due to the IRS Regulation168(k) – Bonus Depreciation.  The losscarryforward is subject to annual limitations prescribed by the InternalRevenue Code, which are available to offset future taxable income through 2003.No valuation allowance has been recorded to offset the net deferred taxes dueto the certainty of the Company’s ability to generate future taxable income.

 

During the first nine months of 2002, the subsidiary, InternationalWholesale Tile Inc. was taxed as an S corporation according to the provisionsof the Internal Revenue Code. Accordingly, no provision or liability for income taxes is reflected inthe accompanying statements for that period of time.  Instead, the stockholders were liable forindividual Federal income taxes on their respective share of the Company’staxable income.  S corporations paydistribution of profits in lieu of dividends.

 

F-19

----

 

The provision (benefit) for income taxes is comprised of the following:

 
| ** **                                 | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
|                                       |       |     |       |     |       |
| Current taxes                              |       | $        | 0          |     | $          | 0 |   |
| Deferred tax expense (benefit)             |       | (64,455  | )          | (34,347  | )          |
|                                       |       |     |       |     |       |
| Total provision (benefit) for income taxes |       | $        | (64,455    | )        | $          | (34,347 | ) |

 

Deferred income taxes reflect the net tax effect of temporarydifferences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes.  Significant components of the net deferredtax assets (liabilities) were as follows:

 
| ** **                            | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
|                                  |       |     |       |     |       |
| Deferred tax assets                   |       |     |       |     |       |
| Loss carryforward                     |       | $        | 230,143    |     | $          | 76,546 |   |
| Accounts receivable                   |       | 40,800   |       | 2,934    |       |
| Non qualified options                 |       | 101,205  |       | 0        |       |
| Other                                 |       | 3,390    |       | 0        |       |
|                                  |       |     |       |     |       |
| Total deferred tax assets             |       | 375,538  |       | 79,480   |       |
| Deferred tax liabilities              |       |     |       |     |       |
| Accelerated depreciation              |       | 276,735  |       | (45,133  | )          |
|                                  |       |     |       |     |       |
| Total deferred tax liabilities        |       | 276,735  |       | (45,133  | )          |
|                                  |       |     |       |     |       |
| Net deferred tax assets (liabilities) |       | $        | 98,803     |     | $          | 34,347 |   |

 

A reconciliation of the federal statutory rate and the Company’seffective tax rate is presented as follows:

 
|                                                   |   | **2003** |    | **2002** |   |
|--------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                   |   |     |    |     |   |   |   |   |   |
| Computed expected tax expense                          |   |     |    |     |   |   |   |   |   |
| Federal                                                |   | $        | (54,100 | )        | 31.00  | % | $ | (29,496 | ) | 31.00 | % |
| State income taxes, net of Federal income tax  benefit |   | (10,355  | )       | 5.00     | %      | (4,851 | ) | 5.00 | % |
|                                                   |   |     |    |     |   |   |   |   |   |
| Effective  income taxes (benefit)                      |   | $        | (64,455 | )        | 34.00  | % | $ | (34,347 | ) | 34.00 | % |

 

F-20

----

 

**NOTE 10****                                             STOCKHOLDERS’EQUITY**

 

Common Stock

 

During March 2003, the Company completeda private placement of its securities, which was initiated in 2002.  As a result, the Company issued an aggregateof 220,000 shares of its unregistered common stock at $3.00 per unit, resultingin aggregate proceeds of $660,000.  (See Note13)

 

During December 2003, the Companycompleted a public offering of its securities. As a result, the Company issued an aggregate of 250,000 shares of itsregistered common stock at $5.50 per unit, resulting in aggregate net proceedsof $1,292,250 after offering costs of $82,500. (See Note 14)

 

In December 2003, the Company completeda private placement of its unregistered securities and signed a subscriptionagreement with an investor to purchase 100,000 units at $5.50 per unit.  Each unit consisted of one (1) share ofcommon stock and one warrant to purchase one additional share at $7.00 pershare.  In addition, the investor signeda stock pledge agreement and a promissory note for $550,000, at 3.0% interest peryear, with a maturity date of June 30, 2004.  The investor pledged the 100,000 shares toIWT Tesoro Corporation until the promissory note is paid in full.

 

In March 2004, the Company received fullpayment for the promissory note.

 

Warrants

 

As it relates to the private placement, 330,000 warrants were issued atan initial price of $3.00 per share. These warrants will expire in 5 years from the date of issuance.  Through December 31, 2003, 85,000 ofthese outstanding warrants were exercised for a total of $255,000.

 

As it relates to the initial public offering, 250,000 warrants wereissued at $7.00 per share expiring on June 17, 2006.  At December 31, 2003 all warrants wereoutstanding.

 

Through another private offering, 100,000 warrants were issued during2003, at an exercise price of $7.00 per share, expiring three years from thedate of sale. At December 31, 2003 all of these warrants were outstanding.

 

For purpose of valuing warrants, the Company used the Black-Scholesoption pricing model with the following assumptions for the years ended December 31:

 

| ** **                | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
|                      |       |     |       |     |       |
| Expected dividend yield   |       | 0        | %          | 0        | %          |
| Risk free interest rate   |       | 2.12     | %          | 2.27     | %          |
| Expected time of exercise |       | 2 years  |       | 3 years  |       |
| Expected volatility       |       | 0.01     | %          | 0        | %          |

 

The average value of the warrants at the issue date was $0.01 and $0.29during 2003 and 2002, respectively.

 

F-21

----

 

Changes during the years are presented as follows:

 
| ** **                        | ** ** | **Number of Warrants** | ** ** | **Common  Stock** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|-----------------------------------|------------|------------------------|------------|-------------------|------------|---------------------------------------|------------|
|                              |       |                   |       |              |       |                                  |       |
| Balance at January 1, 2002   |       | —                 |       | —            |       | $                                     | —     |   |
| Issued                            |       | 125,000                |       | 125,000           |       | 3.00                                  |       |
| Exercised                         |       | 5,000                  |       | 5,000             |       | 3.00                                  |       |
| Forfeited                         |       | —                 |       | —            |       | —                                |       |
| Balance at December 31, 2002 |       | 120,000                |       | 120,000           |       | 3.00                                  |       |
|                              |       |                   |       |              |       |                                  |       |
| Issued                            |       | 555,000                |       | 555,000           |       | 5.52                                  |       |
| Exercised                         |       | 80,000                 |       | 80,000            |       | 3.00                                  |       |
| Forfeited                         |       | —                 |       | —            |       | —                                |       |
| Balance at December 31, 2003 |       | 595,000                |       | 595,000           |       | $                                     | 5.52       |   |

 

Warrants outstanding and exercisable at December 31, 2003 are asfollows:

 
| ** **                     | ** ** | **WARRANTS OUTSTANDING** | ** ** | **WARRANTS EXERCISABLE**                          | ** ** |
|--------------------------------|------------|--------------------------|------------|---------------------------------------------------|------------|
| **Range  of  Exercise  Price** | ** ** | **Number  Outstanding**  | ** ** | **Weighted  Average  Remaining  Contracted Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|                           |       |                     |       |                                              |       |   |   |   |   |   |   |
| $3.00-7.00                     |       | 245,000                  |       | 4.6 years                                         |       | $ | 4.04 |   | 245,000 |   | $ | 4.04 |   |
| $7.00                          |       | 350,000                  |       | 2.8 years                                         |       | $ | 7.00 |   | 350,000 |   | $ | 7.00 |   |

 

**NOTE 11****                                             STOCKOPTIONS AND COMPENSATION PLAN**

 

Stock Compensation Plan

 

On December 27, 2001, IWT Tesoro Corporation adopted the StockIncentive Plan (the Plan).  The Planprovides that eligible employees, consultants, and affiliates may be grantedshares of common stock.  Under the Plan,the options granted are non-qualified stock options, incentive stock options,and restricted stock.  The aggregatetotal common stock that may be issued under the Plan is 4,000,000 shares.  The restricted shares issued to employeeswere recorded at the fair value on the grant date. Under the Plan, a total of18,200 and 134,500 restricted shares were issued to employees, directors andconsultants for services rendered for the years ended December 31 2003 and2002, respectively.

 

Under the Plan, all unissued restricted shares were registered afterthe balance sheet date and all issued restricted shares were registered forresale without any additional restrictions imposed by the CompensationCommittee.  (See Note 17)

 

F-22

----

 

On November 23, 2002, the Company granted 40,000 options todirectors at an exercise price of $3.00 per share, expiring in ten years.  At December 31, 2003, the options werefully vested.

 

On November 23, 2002, the Company granted 400,000 options toofficers at an exercise price of $3.00 per share, expiring in ten years. Theoptions vest as follows: (a) 33% at such time as the Company’s common stockcommences trading on the Over-The-Counter (OTC) Bulletin Board (equivalent);(b) 33% at such time as the Company attains no less than a $50 million marketcap for ten consecutive trading days; and (c) 33% when the Company achieves its2003 revenue and profit targets.  AtDecember 31, 2003 the options were 66% vested.

 

During 2002, all options were granted to employees, and accounted foraccording to APB 25; therefore no compensation expense was recognized.  (See Note 18 regarding restatement of stockoption compensation) No options were granted during 2003.

 

For financial statement disclosure purposes, the fair market value ofeach stock option granted to officers and employees during 2002 was establishedat the date of grant using the Black-Scholes option pricing model in accordancewith Statement No. 123, with the following assumptions:

 

| Expected dividend yield   |   | 0       | %      |
|---------------------------|--------|---------|--------|
| Risk free interest rate   |   | 2.32    | %      |
| Expected time of exercise |   | 3 years |   |
| Expected volatility       |   | 0       | %      |

 
| ** ** | ** ** | **Number of  Securities  Underlying  Options** | ** ** | **Percent of  Total Authorized  Options Available  Under the Plan  in Fiscal Year** | ** ** | **Exercise or  Base Price** | ** ** | **Expiration  Date** | ** ** | **Value of Options  at Grant Date  Using an Option  Pricing Model** | ** ** |
|------------|------------|------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------|------------|---------------------------------------------------------------------|------------|
|       |       |                                           |       |                                                                                |       |                        |       |                 |       |                                                                |       |
| Officers   |       | 306,668                                        |       | 11                                                                                  | %          | $                           | 3.00       |                 | 11/23/2012 |                                                                | $          | 0.20 |   |
|            |            |                                                |            |                                                                                     |            |                             |            |                      |            |                                                                     |            |  |  |

 

No options were granted.  During2003, 133,332 options expired.

 

Options outstanding and exercisable atDecember 31, 2003 are as follows:

 
| ** **                     | ** ** | **OPTIONS OUTSTANDING** | ** ** | **OPTIONS EXERCISABLE**                           | ** ** |
|--------------------------------|------------|-------------------------|------------|---------------------------------------------------|------------|
| **Range  of  Exercise  Price** | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Remaining  Contracted Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $                              | 3.00       |                    | 306,668    |                                              | 8.9        |   | $ | 3.00 |   | 306,668 |   | $ | 3.00 |   |
|                                |            |                         |            |                                                   |            |  |  |  |  |  |  |  |  |  |

 

F-23

----

 

**NOTE 12****                                             ACQUISITION**

 

On October 1, 2002, the Company acquired International Wholesale Tile,Inc. In connection with the legal form of this transaction, InternationalWholesale Tile, Inc. became a wholly owned subsidiary of IWT TesoroCorporation.  A total of 9,000,000 sharesof common stock were issued for the acquisition.  For accounting purposes, the acquisition hasbeen treated as a capital transaction and as a recapitalization ofInternational Wholesale Tile, Inc.  Thefinancial statements became those of International Wholesale Tile, Inc., withadjustments to reflect the changes in equity structure.  The operations are those of InternationalWholesale Tile, Inc. for all periods presented, and those of IWT TesoroCorporation from the recapitalization date. The accompanying consolidated balance sheets reflect the assets andliabilities at historical cost of IWT Tesoro Corporation and InternationalWholesale Tile, Inc. at December 31, 2002; and the assets and liabilitiesat historical cost of International Wholesale Tile, Inc. at December 31,2001.

 

As part of the transaction, the Company and each of the threeshareholders of International Wholesale Tile, Inc. entered into a repurchaseagreement, to commence on January 1, 2003 for three years, by which thethree shareholders may sell a certain amount of the Company’s common stock backto the Company for a price based on an amount equal to 88% of the averagetrading price of the Company’s common stock so long as the stock istrading.  The amount of stock isgenerally up to 25,000 shares for the first year, up to 50,000 shares for thesecond year, and up to 75,000 shares for the third year.  The repurchase agreement is contingent upontrading of the Company’s stock on the NYSE, the ASE, the NASDAQ, the Over theCounter Bulletin Board, or the “Pink Sheets.” The maximum number of redeemableshares under the repurchase agreement is 450,000.

 

On June 26, 2003 the Company voted to cancel the repurchaseagreement.

 

**NOTE 13****                                             PRIVATEOFFERING**

 

The Company adopted a subscription agreementon October 1, 2002 to commence a private offering of its common stock toaccredited investors only for up to 1.0 million units at $3.00 per unit; eachconsisting of one (1) share of common stock and warrants to purchase 11⁄2 sharesinitially at $3.00 per share.  The priceof the warrants will increase by $.25 per share at the beginning of eachcalendar quarter following the first public sale of the common stock of IWTTesoro Corporation pursuant to the Company’s form 211 to be filed with theNational Association of Securities Dealers (NASD).

 

Under this private offering, the Companyraised $660,000 in units sold, and through December 31, 2003, 85,000warrants were exercised for a total of $255,000.

 

F-24

----

 

**NOTE 14****                                             PUBLICOFFERING**

 

On April 11, 2003, the Company filed a registration statement with theSecurities and Exchange Commission that was declared effective on June 17,2003. Two offerings were included in the registration statement. The first wasthe offer and sale of 250,000 units at $5.50 per unit.  Each unit consists of one share of Tesorocommon stock and a warrant to purchase one share at $7.00 per share throughJune 17, 2006.  Through July 7, 2003,these units were offered exclusively to current stockholders of the Company.  The second offering was to register on behalfof certain Tesoro stockholders an aggregate of 1,243,502 shares for resale; ofthis total 443,500 have no lock-up period, 699,002 are subject to a six-monthlock-up period, and 101,000 are subject to a 12-month lock-up period.  The Company elected to extend this offeringto December 14, 2003.

 

Under the first public offering, the Company raised $1,292,500, net ofoffering cost, through the sale of the 250,000 units.  At December 31, 2003, no warrants wereexercised under this offering.

 

**NOTE 15****                                             SEGMENTINFORMATION**

 

The Company manages its operations as onesegment and all revenue is derived from customers in the United States.

 

**NOTE 16****                                             PENSIONPLAN**

 

The Company sponsors a 401(k) plan known asthe International Wholesale Tile 401(k) Profit Sharing Plan & Trust. (thePension Plan).  The Pension Plan providestax deferred salary deductions for eligible employees.  Employees may contribute from 1% to 12% oftheir annual compensation to the Pension Plan, limited to an annual maximumamount as set periodically by the Internal Revenue Service.  The Company provides matching contributionsequal to 100% of the employee’s contributions up to a maximum of 3% of eligiblepay.  The contribution expense related tothe Pension Plan amounted to $76,249 and $59,352 for the years endedDecember 31, 2003 and 2002, respectively.

 

**NOTE 17****                                             SUBSEQUENTEVENTS**

 

The Company filed form S-8 with theSecurities and Exchange Commission on January 26, 2004, registering4,000,000 shares of common stock that are issued or intended to be issued toemployees, consultants and others under the 2001 Stock Incentive Plan.

 

On January 10, 2004, the Company granted 50,000 options todirectors at an exercise price of $6.00 per share, expiring in ten years.  The options will become vested andexercisable as follows: (a) 50% will vest immediately; and (b) the remaining50% will vest on the anniversary date of the option grant.

 

**NOTE 18****                                          RESTATEMENT**

 

Stock Options

The Company has restated the consolidatedbalance sheet at December 31, 2003 and the consolidated statements ofoperations, stockholders’ equity and cash flows for the year then ended.

 

The restatement has been madeto reflect the proper accounting, in accordance with accounting principlesgenerally accepted in the United States of America, in connection with optionsgranted to four executive officers.  TheCompany’s original assessment of this transaction, determined that nocompensation needed to be recognized under APB 25, using the intrinsic value.  After further review of the conditions underwhich these options were granted, the Company reevaluated the accountingtreatment of the options and concluded that the options granted wereperformance-vested options.  The planprovides that the option holder will not realize any value from the option unlessspecific conditions are met.  This typeof plan normally triggers variable plan accounting because the measurement dateoccurs after the date of the grant.  Themeasurement date is the date in which both the number of shares and theexercise price are known.  In this case,at the grant date only the exercise price was known; the ultimate number ofshares would not been known until vesting occurred, and vesting is determinedupon the attainment of the conditions as explained below:

 

*...Optionto purchase from the company up to 100,000 shares of common stock  at a price per share of $3.00.... The optionsshall become vested and exercisable as follows: **a**- 33% of options shall vest at such time as the C/S shallcommence trading on the Over the Counter Bulletin Board (or its equivalent), **b**- 33% shall vest at such time as theCompany shall attain no less than a $50.0 million market cap for 10 consecutivetrading days and **c**- 34% shall vestif the Company achieves its 2003 revenue and profit targets, which targetsshall be as approved by the Company’s Board of Directors....*

 

Conditions **a**and **b**were met.  Therefore, two thirds of theoptions vested and became exercisable during December 2003.  Condition **c**was not realized, and the options attached to this condition expired.

 

Under variable plan accounting, the Company will recognize a negativeimpact to earnings. The ultimate effect is determined by the difference betweenthe grant price ($3.00) of the options and the stock’s current fair marketvalue at the time of vesting ($5.50), multiplied by the percentage of optionsvested.

 
| ** **                                        | ** ** | **Exercisable  Options** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|
|                                              |       |                     |       |
| Total of options vested                           |       | 266,667                  |       |
| Intrinsic value                                   |       | 2.50                     |       |
| Compensation expense                              |       | 666,667                  |       |
| Non-Qualified stock options deferred tax  benefit |       | (101,205                 | )          |
| Effect of restatement                             |       | 565,462                  |       |

 

Sample Boards

 

Subsequent to the issuance of the audited financial statements for theyear ended December 31, 2003, the Company identified a list ofdiscontinued product lines whose related capitalized sample boards would bedeemed impaired, as they are no longer capable of generating futurebenefit.  The carrying book value ofthese assets was $66,250.  Accordingly,the Company proceeded to recognize the impairment and $66,250 was charged tooperations.

 

The effect of these changes are summarized as follows:

 
| ** **                                      | ** ** | **As Restated** | ** ** | **As Originally  Reported** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|-----------------------------|------------|
|                                            |       |            |       |                        |       |
| **CONSOLIDATED  BALANCE SHEET**                 |       |            |       |                        |       |
| Property and equipment, net                     |       | $               | 4,217,268  |                        | $          | 4,283,518 |   |
| Deferred tax assets                             |       | 247,398         |       | 146,192                     |       |
| Additional paid in capital outstanding  options |       | 666,667         |       | 0                           |       |
| Retained earnings (deficit)                     |       | (380,146        | )          | 251,565                     |       |
| Total shareholders’ equity                 |       | 4,604,297       |       | 4,569,341                   |       |
|                                                 |            |                 |            |                             |            |  |  |

 
| ** **                                | ** ** | **As Restated** | ** ** | **As Originally  Reported** | ** ** |
|-------------------------------------------|------------|-----------------|------------|-----------------------------|------------|
|                                      |       |            |       |                        |       |
| **CONSOLIDATED  STATEMENT OF OPERATIONS** |       |            |       |                        |       |
| Compensation expense – stock options |       | $               | 666,667    |                        | $          | 0 |   |
| Impairment of long-lived assets           |       | 66,250          |       | 0                           |       |
| Earnings (loss) before income taxes       |       | (259,861        | )          | 473,065                     |       |
| Deferred tax benefit (expense)            |       | 64,455          |       | (36,750                     | )          |
| Net earnings (loss)                       |       | (195,406        | )          | 436,305                     |       |
| Basic earnings (loss) per common share    |       | (0.02           | )          | 0.04                        |       |
| Diluted earnings (loss) per common share  |       | (0.02           | )          | 0.04                        |       |
|                                           |            |                 |            |                             |            |  |  |

 

F-25

----

 

**ITEM13.****                 EXHIBITS,LIST AND REPORTS ON FORM 10-KSB**

 

a.                                       Exhibits

 
| **EXHIBIT  NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                               |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1                 |       | Form  of Selected Dealers Agreement (filed as an Exhibit to the Company’s  Registration Statement, filed with the Securities and Exchange Commission on  June 4, 2003)                                                                                              |
| 1.2                 |       | Selected  Exclusive Dealers Agreement dated November 22, 2003 (filed as an Exhibit  to the Company’s Report on Form 8-K, filed with the Securities and Exchange  Commission on September 24, 2003)                                                             |
| 3.1                 |       | Articles  of Incorporation (filed as an Exhibit to the Company’s Form 10-SB, filed with  the Securities and Exchange Commission on August 7, 2000)                                                                                                                  |
| 3.1.1               |       | Articles  of Amendment to Articles of Incorporation dated September 23, 2002  (filed as an Exhibit to the Company’s Report on Form 8-K, filed with the  Securities and Exchange Commission on October 1, 2002)                                                 |
| 3.2.1               |       | Bylaws  (filed as an Exhibit to the Company’s Form 10-SB, filed with the Securities  and Exchange Commission on August 7, 2000)                                                                                                                                     |
| 3.2.2               |       | Amended  and Restated Bylaws (filed as an Exhibit to the Company’s Report on Form 8-K,  filed with the Securities and Exchange Commission on February 4, 2003)                                                                                                      |
| 3.3.1               |       | Specimen  Stock Certificate (filed as an Exhibit to the Company’s Form 10-SB, filed  with the Securities and Exchange Commission on August 7, 2000)                                                                                                                 |
| 3.3.2               |       | Audit  Committee Charter (filed as an Exhibit to the Company’s Report on Form 8-K,  filed with the Securities and Exchange Commission on February 4, 2003)                                                                                                          |
| 3.3.3               |       | Compensation  Committee Charter (filed as an Exhibit to the Company’s Report on Form 8-K,  filed with the Securities and Exchange Commission on February 4, 2003)                                                                                                   |
| 3.3.4               |       | Nominating  And Governing Committee Charter (filed as an Exhibit to the Company’s Report  on Form 8-K, filed with the Securities and Exchange Commission on  February 4, 2003)                                                                                      |
| 3.4.1               |       | Code  of Ethics for Senior Financial Officers (filed as an Exhibit to the Company’s  Registration Statement, filed with the Securities and Exchange Commission on  April 11, 2003)                                                                                  |
| 4.1.1               |       | Form  of Warrant Agreement (filed as an Exhibit to the Company’s Registration  Statement, filed with the Securities and Exchange Commission on  April 11, 2003)                                                                                                     |
| 4.1.2               |       | Form  of Stock Certificate (filed as an Exhibit to the Company’s Registration  Statement, filed with the Securities and Exchange Commission on  April 11, 2003)                                                                                                     |
| 4.1.3               |       | Form  of Lock-Up Agreement (filed as an Exhibit to the Company’s Registration  Statement, filed with the Securities and Exchange Commission on  April 11, 2003)                                                                                                     |
| 10.1                |       | Agreement  With Peter Goss (filed as an Exhibit to the Company’s Form 10-SB, filed with  the Securities and Exchange Commission on August 7, 2000)                                                                                                                  |
| 10.2                |       | Stockholders  Agreement (filed as an Exhibit to the Company’s Form 10-SB, filed with the  Securities and Exchange Commission on August 7, 2000)                                                                                                                     |
| 10.3                |       | 2001  Ponca Acquisition Corporation Stock Incentive Plan. (filed as an Exhibit to  the Company’s Report on Form 8-K, filed with the Securities and Exchange Commission  on September 11, 2002)                                                                      |
| 10.4                |       | Employment  Agreement Between Ponca Acquisition Corporation And Henry Jr. Boucher, Jr.  Dated As Of December 29, 2002 (filed as an Exhibit to the Company’s  Report on Form 8-K, filed with the Securities and Exchange Commission on  September 11, 2002)     |
| 10.5                |       | Memorandum  Of Understanding Between Ponca Acquisition Corporation And The Stockholders  Of International Wholesale Tile, Inc. (filed as an Exhibit to the Company’s  Report on Form 8-K, filed with the Securities and Exchange Commission on  September 11, 2002) |
| 10.6                |       | Stock  Purchase Agreement Among The Stockholders Of International Wholesale Tile,  Inc., and                                                                                                                                                                                  |

 

----

 
|   |   | IWT  Tesoro Corporation, Effective October 1, 2002 (filed as an Exhibit on  Form 8-K, filed with the Securities and Exhibit Commission on  October 15, 2002).                                                                                                                                                                                                                                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.7   |   | Termination  Of Stockholders Agreement (filed as an Exhibit to the Company’s Report on  Form 8-K/A, filed with the Securities and Exchange Commission on  February 4, 2003)                                                                                                                                                                                                                                  |
| 10.8   |   | Repurchase  Agreement (filed as an Exhibit to the Company’s Report on Form 8-K/A, filed  with the Securities and Exchange Commission on February 4, 2003)                                                                                                                                                                                                                                                    |
| 10.9   |   | Form  of Indemnity Agreement (filed as an Exhibit to the Company’s Registration  Statement, filed with the Securities and Exchange Commission on  April 11, 2003)                                                                                                                                                                                                                                            |
| 10.00  |   | Employment  Agreement between International Wholesale Tile, Inc. and Forrest Jordan  (exhibits omitted) (filed as an Exhibit to the Company’s Registration  Statement, filed with the Securities and Exchange Commission on May 21, 2003)                                                                                                                                                                         |
| 10.11  |   | Employment  Agreement between International Wholesale Tile, Inc. and Paul F. Boucher  (this document is omitted as it is substantially similar to Forrest Jordan’s  Employment Agreement with the exception of the employee’s name and address)                                                                                                                                                              |
| 10.12  |   | Employment  Agreement between International Wholesale Tile, Inc. and Grey Perna (this  document is omitted as it is substantially similar to Forrest Jordan’s  Employment Agreement with the exception of the employee’s name and address)                                                                                                                                                                   |
| 10.13  |   | Subordination  Agreement between Congress Financial Corporation (Florida). and Forrest  Jordan (filed as an Exhibit to the Company’s Registration Statement, filed  with the Securities and Exchange Commission on May 21, 2003)                                                                                                                                                                                  |
| 10.14  |   | Subordination  Agreement between Congress Financial Corporation (Florida). and Paul F.  Boucher (this document is omitted as it is substantially similar to Forrest  Jordan’s Subordination Agreement with the exception of the employee’s name  and address)                                                                                                                                                |
| 10.15  |   | Subordination  Agreement between Congress Financial Corporation (Florida). and Grey Perna  (this document is omitted as it is substantially similar to Forrest Jordan’s  Subordination Agreement with the exception of the employee’s name and  address)                                                                                                                                                     |
| 10.16  |   | Termination  of Repurchase Agreement dated June 26, 2003 between IWT Tesoro  Corporation and Forrest Jordan (filed as an Exhibit to the Company’s Form  8-K, filed with the Securities and Exchange Commission on June 26,  2003).                                                                                                                                                                      |
| 10.17  |   | Termination  of Repurchase Agreement dated June 26, 2003 between IWT Tesoro  Corporation and Paul F. Boucher (this document is omitted as it is  substantially similar to Forrest Jordan’s Termination of Repurchase Agreement  with the exception of the name and address) (filed as an Exhibit to the  Company’s Form 8-K, filed with the Securities and Exchange Commission on  June 26, 2003). |
| 10.18  |   | Termination  of Repurchase Agreement dated June 26, 2003 between IWT Tesoro  Corporation and Grey Perna (this document is omitted as it is substantially  similar to Forrest Jordan’s Termination of Repurchase Agreement with the  exception of the name and address) (filed as an Exhibit to the Company’s Form  8-K, filed with the Securities and Exchange Commission on June 26,  2003).      |
| 16.2   |   | Letter  regarding change in Certifying Accountants (filed as an Exhibit to the  Company’s Report on Form 8-K/A filed with the Securities and Exchange  Commission on March 2, 2004).                                                                                                                                                                                                                         |
| 21.    |   | Subsidiaries  of Registrant (filed as an Exhibit to the Company’s Registration Statement,  filed with the Securities and Exchange Commission on April 11, 2003)                                                                                                                                                                                                                                              |
| 31.1   |   | Certification  of Henry J. Boucher, Jr., Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act.*                                                                                                                                                                                                                                                                                             |
| 31.2   |   | Certification  of Forrest Jordan, Chief Financial Officer pursuant to Section 302 of  the Sarbanes-Oxley Act.*                                                                                                                                                                                                                                                                                                    |
| 32.1   |   | Certification  of Henry J. Boucher, Jr., Chief Executive Officer pursuant to  Section 906 of the Sarbanes-Oxley Act.*                                                                                                                                                                                                                                                                                             |
| 32.2   |   | Certification  of Forrest Jordan, Chief Financial Officer pursuant to Section 906 of  the Sarbanes-Oxley Act.*                                                                                                                                                                                                                                                                                                    |
| 99.1   |   | MRS’  Letter To The Securities And Exchange Commission. (filed as an Exhibit to the  Company’s Report on Form 8-K/A, filed with the Securities and Exchange  Commission on October 8, 2002)                                                                                                                                                                                                             |
| 99.2   |   | Letter  from Peter Goss regarding fiscal year end (filed as an Exhibit to the  Company’s Report on Form 8-K, filed with the Securities and Exchange  Commission on October 15, 2002)                                                                                                                                                                                                                         |

 

----

| *      |   | Included in this filing. |
|--------|--------|--------------------------|
|   |   |                     |
| (b)    |   | Reports on  Form 8-K.    |

 

 

**—**Reporton Form 8-K filed October 31, 2003 discussing Tesoro’s entering into anExclusive Dealer Agreement in connection with its Public Offering.

 

—Report onForm 8-K filed December 9, 2003 in connection with the Merger of Tesoro’sIndependent Accountants and the completion of the sale of its units in Tesoro’spublic Offering.

 

—Report onForm 8-K filed December 17, 2003 announcing the commencing of trading ofTesoro’s common stock on the Over the Counter Bulletin Board under the symbol“IWTT”.

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act of 1934,the Company caused this Annual Report on Form 10KSB/A to be signed on itsbehalf by the undersigned thereunto duly authorized.

 

IWT TESORO CORPORATION

 
| By:                                                                                                                                                                                                                                                    | /s/ Henry J. Boucher, Jr.               |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------|--------|
|                                                                                                                                                                                                                                                   | Henry J.  Boucher, Jr.,  President |
|                                                                                                                                                                                                                                                   |                                    |
| Date: September 23, 2004                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                   |                                    |
| In accordance with the Exchange Act, this report has been signed  below by the following persons on behalf of the Company and in the capacities  and on the dates indicated, and which represents a majority of the Company’s  Board of Directors |
|                                                                                                                                                                                                                                                   |                                    |
| /s/ Henry J. Boucher, Jr.                                                                                                                                                                                                                              | September 23, 2004                 |
| Henry J.  Boucher, Jr.,  Principal Executive Officer                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                   |                                    |
| /s/ Forrest Jordan                                                                                                                                                                                                                                     | September 23, 2004                 |
| Forrest Jordan, Principal Financial Officer                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                   |                                    |
| /s/ Henry J. Boucher, Jr.                                                                                                                                                                                                                              | September 23, 2004                 |
| Henry J.  Boucher, Jr.,  Director                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                   |                                    |
| /s/ James R. Edwards, Director                                                                                                                                                                                                                         | September 23, 2004                 |
| James Edwards, Director                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                   |                                    |
| /s/ Paul F. Boucher                                                                                                                                                                                                                                    | September 23, 2004                 |
| Paul F.  Boucher, Director                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                   |                                    |
| /s/ Forrest Jordan                                                                                                                                                                                                                                     | September 23, 2004                 |
| Forrest Jordan, Director                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                   |                                    |
| /s/ Grey Perna                                                                                                                                                                                                                                         | September 23, 2004                 |
| Grey Perna, Director                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                        |                                         |        |  |

 

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