HUMBL, INC. - Quarter Report: 2007 September (Form 10-Q)
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007 |
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o |
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
Commission File No. 0-31267
IWT TESORO CORPORATION
(Exact name of registrant as specified in its charter)
Nevada |
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91-2048019 |
(State or other
jurisdiction of |
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(I.R.S. Employer |
101 Post Road West, Suite 10, Westport, CT 06880
(Address of principal executive offices)
(203) 221-2770
(Registrants telephone number, including area code)
Indicate by check, mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer. x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
o Yes x No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check market whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court.
o Yes x No
Indicate the number of shares outstanding of each of the issuers class of common equity, as of November 6, 2007: 13,185,567 shares
IWT TESORO CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
FORM 10-Q
For the nine months ended September 30, 2007
INDEX
2
PART 1 FINANCIAL INFORMATION
IWT TESORO CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
|
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September 30, |
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December 31, |
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||
|
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2007 |
|
2006 |
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||
|
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(Unaudited) |
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|
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ASSETS |
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|
|
|
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Current Assets: |
|
|
|
|
|
||
Cash |
|
$ |
580,701 |
|
$ |
157,729 |
|
Accounts receivable, net of allowance for doubtful accounts and returns of $518,605 and $477,674, respectively |
|
8,302,821 |
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9,780,039 |
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Inventories, net of allowance for obsolescence of $299,443 and $525,000, respectively |
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19,325,157 |
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30,674,860 |
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Deposit on purchases of inventories |
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149,521 |
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167,693 |
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||
Prepaid expenses |
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243,879 |
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210,345 |
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||
Total current assets |
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28,602,079 |
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40,990,666 |
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||
Property and Equipment, net |
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1,942,322 |
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2,264,762 |
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Other Assets |
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772,824 |
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1,016,250 |
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||
Total assets |
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$ |
31,317,225 |
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$ |
44,271,678 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
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Current Liabilities: |
|
|
|
|
|
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Accounts payable |
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$ |
552,085 |
|
$ |
17,014,921 |
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Accrued expenses and other liabilities |
|
790,131 |
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2,040,593 |
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||
Debtor in possession financing |
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1,446,390 |
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$ |
|
|
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Current portion of equipment leases |
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55,889 |
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||
Current portion of equipment notes |
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30,499 |
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Note payable, revolving line of credit |
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24,400,378 |
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Current portion of convertible debt |
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800,007 |
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Note payable, other (net of discounts of $74,273) |
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1,925,727 |
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Total current liabilities |
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2,788,606 |
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46,268,014 |
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||
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|
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|
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Liabilities Subject To Compromise |
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39,949,719 |
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||
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Long-Term Debt: |
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|
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|
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Capital leases, equipment, net of current portion |
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|
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41,098 |
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Notes payable, equipment, net of current portion |
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|
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47,297 |
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Note payable, revolving line of credit (net of discounts of $2,777,792) |
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2,222,208 |
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Convertible debt, net of current portion (net of discounts of $741,408) |
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125,252 |
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Total long-term debt |
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2,435,855 |
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Total liabilities |
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42,738,325 |
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48,703,869 |
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Stockholders Equity: |
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Preferred stock, $0.001 par value, 25,000,000 authorized; none issued |
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|
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Common stock, $0.001 par value, 100 million shares authorized; 12,185,567 and 11,928,600 issued and outstanding, respectively |
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12,186 |
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11,929 |
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Additional paid in capital |
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7,911,917 |
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7,383,305 |
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Accumulated deficit |
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(19,325,123 |
) |
(11,817,278 |
) |
||
|
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(11,401,020 |
) |
(4,422,044 |
) |
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Treasury stock, 10,584 and 6,105 shares at cost, respectively |
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(20,080 |
) |
(10,147 |
) |
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Total stockholders deficit |
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(11,421,100 |
) |
(4,432,191 |
) |
||
|
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$ |
31,317,225 |
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$ |
44,271,678 |
|
See notes to the consolidated interim financial statements.
3
IWT TESORO CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
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The three months ended |
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The nine months ended |
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September 30, |
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September 30, |
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||||||||
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2007 |
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2006 |
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2007 |
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2006 |
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||||
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|
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Net Sales |
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$ |
10,795,603 |
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$ |
15,173,449 |
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$ |
40,268,664 |
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$ |
48,145,483 |
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Cost of Goods Sold |
|
6,699,621 |
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9,578,329 |
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25,693,656 |
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30,544,590 |
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Gross Profit |
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4,095,982 |
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5,595,120 |
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14,575,008 |
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17,600,893 |
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||||
Operating Expenses: |
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|
|
|
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||||
Warehouse and distribution |
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2,219,728 |
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2,579,239 |
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7,335,602 |
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7,572,091 |
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Sales and marketing |
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872,268 |
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1,333,839 |
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3,532,968 |
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4,291,838 |
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General and administrative |
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1,446,302 |
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1,757,293 |
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5,398,233 |
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5,672,372 |
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Restructuring charge |
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585,680 |
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||||
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4,538,298 |
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5,670,371 |
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16,266,803 |
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18,121,981 |
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||||
Loss from Operations |
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(442,316 |
) |
(75,251 |
) |
(1,691,795 |
) |
(521,088 |
) |
||||
Other Expenses: |
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|
|
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|
|
|
|
|
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Interest expense (Contractual interest $1,288,919, $1,612,093, $4,228,018 and $4,030,140, respectively) |
|
(1,088,919 |
) |
(1,612,093 |
) |
(4,028,018 |
) |
(4,030,140 |
) |
||||
Change in fair value of derivative |
|
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261,589 |
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|
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4,608,822 |
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||||
Other income (expense) |
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(80,059 |
) |
18,651 |
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(77,325 |
) |
(122,757 |
) |
||||
Loss Before Reorganization Items |
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(1,168,978 |
) |
(1,331,853 |
) |
(4,105,343 |
) |
455,925 |
|
||||
and Income Tax Expense |
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(1,611,294 |
) |
(1,407,104 |
) |
(5,797,138 |
) |
(65,163 |
) |
||||
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|
|
|
|
|
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|
|
|
||||
Reorganization items: |
|
|
|
|
|
|
|
|
|
||||
Professional fees |
|
190,221 |
|
|
|
190,221 |
|
|
|
||||
Loss on debt revaluation |
|
2,127,918 |
|
|
|
2,127,918 |
|
|
|
||||
Interest accrued |
|
(620,513 |
) |
|
|
(620,513 |
) |
|
|
||||
|
|
1,697,626 |
|
|
|
1,697,626 |
|
|
|
||||
Loss Before Income Tax Expenses |
|
(3,308,920 |
) |
(1,407,104 |
) |
(7,494,764 |
) |
(65,163 |
) |
||||
|
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|
|
|
|
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|
||||
Income Tax Expense |
|
(1,030 |
) |
|
|
(13,081 |
) |
|
|
||||
Net Loss |
|
$ |
(3,309,950 |
) |
$ |
(1,407,104 |
) |
$ |
(7,507,845 |
) |
$ |
(65,163 |
) |
Loss Per Share: |
|
|
|
|
|
|
|
|
|
||||
Basic and Diluted |
|
$ |
(0.28 |
) |
$ |
(0.12 |
) |
$ |
(0.62 |
) |
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
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|
||||
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic and Diluted |
|
11,988,572 |
|
11,928,600 |
|
12,053,342 |
|
11,845,553 |
|
See notes to the consolidated interim financial statements.
4
IWT TESORO CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
|
|
Common Stock |
|
Treasury |
|
Additional |
|
Accumulated |
|
|
|
|||||||
|
|
Shares |
|
Amount |
|
Stock |
|
Capital |
|
Deficit |
|
Total |
|
|||||
Balance, December 31, 2006 |
|
11,928,600 |
|
$ |
11,929 |
|
$ |
(10,147 |
) |
$ |
7,383,305 |
|
$ |
(11,817,278 |
) |
$ |
(4,432,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Issuance of shares to employees and directors for services rendered |
|
66,800 |
|
67 |
|
|
|
110,883 |
|
|
|
110,950 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Issuance of shares to consultant for services rendered |
|
190,167 |
|
190 |
|
|
|
330,769 |
|
|
|
330,959 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Stock option compensation expense |
|
|
|
|
|
|
|
86,960 |
|
|
|
86,960 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Treasury stock at cost |
|
|
|
|
|
(9,933 |
) |
|
|
|
|
(9,933 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss, nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
(7,507,845 |
) |
(7,507,845 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance, September 30, 2007 |
|
12,185,567 |
|
$ |
12,186 |
|
$ |
(20,080 |
) |
$ |
7,911,917 |
|
$ |
(19,325,123 |
) |
$ |
(11,421,100 |
) |
See notes to the consolidated interim financial statements.
5
IWT TESORO CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2007 |
|
2006 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Net loss |
|
$ |
(7,507,845 |
) |
$ |
(65,163 |
) |
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
||
Non-cash restructuring charge |
|
|
|
478,794 |
|
||
Depreciation and amortization |
|
476,479 |
|
542,225 |
|
||
Amortization of loan discount |
|
1,590,399 |
|
1,903,071 |
|
||
Change in fair value of embedded derivative |
|
|
|
(4,608,822 |
) |
||
Common stock issued for services and compensation |
|
441,909 |
|
12,792 |
|
||
Stock option compensation expense |
|
86,960 |
|
88,438 |
|
||
Provision for doubtful accounts and reserve for returns |
|
192,600 |
|
112,160 |
|
||
Loss on disposal of property and equipment |
|
1,864 |
|
80,156 |
|
||
Reorganization charges |
|
1,697,626 |
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
(Increase) Decrease in: |
|
|
|
|
|
||
Accounts receivable |
|
1,284,618 |
|
(2,227,013 |
) |
||
Inventories |
|
11,349,703 |
|
(2,176,158 |
) |
||
Deposit on purchase of inventories |
|
18,172 |
|
415,408 |
|
||
Prepaid expenses and other assets |
|
(34,059 |
) |
(177,509 |
) |
||
Increase (Decrease) in: |
|
|
|
|
|
||
Accounts payable |
|
(1,699,662 |
) |
(1,171,372 |
) |
||
Accrued expenses and other liabilities |
|
445,542 |
|
233,095 |
|
||
Net cash provided by (used in) operating activities |
|
8,344,306 |
|
(6,559,898 |
) |
||
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Acquisitions of property and equipment |
|
(71,597 |
) |
(609,261 |
) |
||
Proceeds from sale of equipment |
|
34,800 |
|
17,300 |
|
||
Net cash used in investing activities |
|
(36,797 |
) |
(591,961 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
||
Proceeds from revolving line of credit |
|
32,232,733 |
|
53,202,232 |
|
||
Payments on revolving line of credit |
|
(41,023,369 |
) |
(50,224,250 |
) |
||
Proceeds from debtor in possession facility |
|
1,446,390 |
|
|
|
||
Proceeds from issuance of convertible debt and warrant |
|
|
|
4,000,000 |
|
||
Debt issuance costs |
|
|
|
(156,000 |
) |
||
Repayment of convertible debt |
|
(473,500 |
) |
(133,334 |
) |
||
Proceeds from long-term debt and capital lease obligations |
|
39,613 |
|
|
|
||
Payments of long-term debt and capital lease obligations |
|
(96,471 |
) |
(78,937 |
) |
||
Purchase of Treasury stock |
|
(9,933 |
) |
(9,894 |
) |
||
Net cash (used in) provided by financing activities |
|
(7,884,537 |
) |
6,599,817 |
|
||
|
|
|
|
|
|
||
Net Increase (Decrease) in Cash |
|
422,972 |
|
(552,042 |
) |
||
|
|
|
|
|
|
||
Cash, Beginning |
|
157,729 |
|
552,042 |
|
||
Cash, Ending |
|
$ |
580,701 |
|
$ |
|
|
See notes to the consolidated interim financial statements.
6
IWT TESORO CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2007 |
|
2006 |
|
||
Cash Paid During the Period for: |
|
|
|
|
|
||
Interest expense |
|
$ |
2,305,437 |
|
$ |
1,945,183 |
|
Income tax |
|
$ |
13,081 |
|
$ |
|
|
Non-Cash Operating Activities: |
|
|
|
|
|
||
Inventory acquired through deposit with vendor |
|
$ |
58,511 |
|
$ |
243,412 |
|
Non-Cash Investing and Financing Activities: |
|
|
|
|
|
||
Payment of interest expense through the issuance of common stock |
|
$ |
132,182 |
|
$ |
181,886 |
|
Reclassification of embedded derivative liability into equity in connection with debt modification |
|
$ |
|
|
$ |
1,345,640 |
|
|
|
|
|
|
|
||
Reorganization Period: |
|
|
|
|
|
||
Cash Received During the Reorganization Period from: |
|
|
|
|
|
||
Cash received from customers |
|
$ |
2,877,504 |
|
$ |
|
|
Proceeds received from Debtor-In-Possession facility |
|
$ |
1,405,000 |
|
$ |
|
|
Cash Paid During the Reorganization Period for: |
|
|
|
|
|
||
Cash paid to employees and employee related expenses |
|
$ |
(485,935 |
) |
$ |
|
|
Cash paid to vendors |
|
$ |
(877,161 |
) |
$ |
|
|
Repayment of convertible debt |
|
$ |
(73,500 |
) |
$ |
|
|
Payment of interest on DIP facility |
|
$ |
(41,390 |
) |
$ |
|
|
Payments on revolving line of credit |
|
$ |
(2,623,202 |
) |
$ |
|
|
See notes to the consolidated interim financial statements.
7
IWT TESORO CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2007
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The consolidated financial statements include IWT Tesoro Corporation and its wholly owned subsidiaries (collectively the Company).
IWT Tesoro Corporation Tesoro was incorporated in the state of Nevada on May 3, 2000. On October 1, 2002, IWT Tesoro Corporation acquired 100% of the outstanding stock of International Wholesale Tile, Inc. (IWT) in exchange for 83% of its outstanding common stock in a transaction accounted for as a recapitalization of IWT. A total of 9,000,000 shares of common stock were issued for the acquisition. For accounting purposes, the acquisition has been treated as a capital transaction and as a recapitalization of International Wholesale Tile, Inc. The financial statements became those of International Wholesale Tile, Inc., with adjustments to reflect the changes in equity structure.
International Wholesale Tile, Inc. is principally a value added reseller of ceramic floor and wall covering products (primarily ceramic, porcelain and stone tile) to the new construction and remodeling industries for commercial and residential marketplaces. In addition to IWT, Tesoros primary operating subsidiary, Tesoro, has five additional wholly-owned subsidiaries. The Tile Club, Inc., formed in 2004, organized to acquire licensing, manufacturing and distribution rights; Tesoro Direct, Inc., formally known as Import Flooring Group, Inc. a wholly-owned subsidiary of The Tile Club formed in 2005 to develop an agency business; and American Gres, Inc. formed in November 2006, organized to produce domestic ceramic tile. The remaining two, IWT Tesoro Transport, Inc. and IWT Tesoro International, LTD., a Bermuda corporation are inactive.
Principles of Consolidation
The consolidated financial statements include IWT Tesoro Corporation and its wholly-owned subsidiaries: International Wholesale Tile, Inc., IWT Tesoro International, Ltd, IWT Tesoro Transport, Inc., American Gres, Inc. and The Tile Club, Inc., and The Tile Club, Inc.s wholly-owned subsidiary Tesoro Direct, Inc., formerly known as Import Flooring Group, Inc. All significant inter-company balances and transactions have been eliminated in consolidation.
Basis of Presentation
The interim financial information included herein is unaudited; however, such information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the Companys financial position, results of operations, changes in stockholders deficit and cash flows for the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the first nine months of the year are not necessarily indicative of the results of operations which might be expected for the entire year. See Note 2, Reorganization under Chapter 11 of the US Bankruptcy Code for a full description of the impact the reorganization has on the basis of presentation of our financial statements.
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q and Rule 10-10 of Regulation S-X of the Securities and Exchange Commission. Accordingly certain information and footnote disclosure required by accounting principles generally accepted in the United States of America for complete financial statements have been omitted. These condensed financial statements should be read in conjunction with the Companys financial statements and notes thereto included in the Companys audited financial statements on Form 10-K, for the fiscal year ended December 31, 2006.
8
The Consolidated Balance Sheet at December 31, 2006 has been derived from the audited financial statements of IWT Tesoro Corporation at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
Adoption of New Accounting Policy
In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 applies to all tax positions related to income taxes subject to SFAS No. 109, Accounting for Income Taxes. This includes tax positions considered to be routine as well as those with a high degree of uncertainty. FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied (i.e., the position is more-likely-than-not to be sustained). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Effective January 1, 2007, the Company has adopted the provisions of FIN 48 and has analyzed its federal and significant state filing positions. The periods subject to examination for the Companys federal returns are the tax years 2004 through 2006. The periods subject to examination for the Companys significant state returns, are the tax years 2004 through 2006. The Company believes that its income tax filing positions and deductions will be sustained on examination and does not anticipate any adjustments that will result in a material change on its financial statements. As a result, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48 nor were there a cumulative effect related to adopting FIN 48 recorded.
The Companys policy for recording interest and penalties related to uncertain tax positions is to record such items as part of its provision for federal and state income taxes.
There have been no other material changes to our significant accounting policies and estimates from the information provided in Note 1 of our Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2006.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes the framework for measuring fair value in generally accepted accounting principals and expands disclosures about fair value measurements. This Statement applies only to fair value measurements that are already required or permitted by other accounting standards. Accordingly, this Statement does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after December 15, 2007. The Company is currently evaluating the impact, if any the adoption of SFAS No. 157 will have on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158). SFAS No. 158 requires companies to recognize in their statement of financial position an asset for a plans over funded status or a liability for a plans under funded status and to measure a plans assets and its obligations that determine its funded status as of the end of the companys fiscal year. Additionally, SFAS No. 158 requires companies to recognize changes in the funded status of a defined benefit postretirement plan in the year that the changes occur and those changes will be reported in comprehensive income. SFAS No. 158 is effective for fiscal years ending after December 31, 2006. The adoption of SFAS No. 158 did not have an impact on our consolidated financial statements.
NOTE 2 REORGANIZATION UNDER CHAPTER 11 OF THE US BANKRUPTCY CODE
On September 6, 2007 (Filing Date), IWT Tesoro Corporation and two of its wholly-owned domestic subsidiaries, International Wholesale Tile, Inc. and American Gres, Inc., filed voluntary petitions for reorganization under the Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York (the Bankruptcy Court) under lead case no. 07-12841. These Chapter 11 cases are collectively referred to as the Bankruptcy Cases.
9
Tesoro Direct, Inc., a wholly-owned subsidiary of IWT Tesoro Corporation did not file a voluntary petition for reorganization however its assets and liabilities were included in the Schedules of Assets and Liabilities filed by International Wholesale Tile, Inc.
IWT Tesoro Transport, Inc. and The Tile Club, Inc., wholly-owned domestic subsidiaries and IWT Tesoro International, LTD a wholly-owned foreign subsidiary of IWT Tesoro Corporation did not file a voluntary petition for reorganization because their total assets equaled less than .04% of the Companys total consolidated assets. In addition these entities had no liabilities. However they are represented in the Consolidated Financial Statements.
IWT Tesoro Corporation and all of its subsidiaries are collectively the Debtors.
The Bankruptcy Cases are being jointly administered, with the Debtors managing their businesses in the ordinary course as debtors in possession subject to the supervision of the Bankruptcy Court. The Debtors intend to continue, normal business operations during the Bankruptcy Cases while they evaluate their businesses both from a financial and an operational perspective. Management is working with several financial partners to cosponsor a plan to reorganize and refinance the Debtors. While we cannot predict with precision how long the reorganization process will take, we expect it to take at least 4 to 6 months from the Filing Date. Under an order entered by the Bankruptcy Court on September 11, 2007, the Debtors were given the option to file on or before November 19, 2007 either a plan of reorganization or a motion to sell substantially all of its assets. The Company has not yet selected its course of action but notes that even if a motion to sell its assets is filed, the Debtors still have an exclusive right to subsequently file a plan of reorganization during its 120 day exclusive period which, absent extension by the Bankruptcy Court, expires on or about January 3, 2008.
Our continuation as a going concern is contingent upon, amongst other things, our ability (i) to comply with the terms and conditions of the Debtor-In-Possession (DIP) Credit Agreement described below; (ii) to obtain confirmation of a plan of reorganization under the Bankruptcy Code; (iii) to reduce administrative, warehouse and interest costs and liabilities through the bankruptcy process; (iv) to return to profitability; and (v) to generate sufficient cash flow from operations. These matters create uncertainty relating to our ability to continue as a going concern. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability of assets and classification of liabilities that might result from the outcome of these uncertainties. In addition, a plan of reorganization could materially change the amounts reported in our consolidated financial statements. Our consolidated financial statements as of September 30, 2007 do not give effect to all the adjustments to the carrying value of assets and liabilities that may become necessary as a consequence of reorganization under Chapter 11.
Our bankruptcy filing triggered the immediate acceleration of certain direct financial obligations, including, among others, an aggregate of $26,541,685 outstanding on the Filing Date, of secured and unsecured notes issued on December 31, 2004 and August 25, 2005 (Note 5), February 10, 2006 (Note 6) and May 3, 2006 (Note 7). Such amounts are characterized as secured debt for purposes of the reorganization proceedings but no determination has yet been made as to whether the value of the secured assets is sufficient to cover the secured liabilities. The related obligations have been classified as liabilities subject to compromise in our consolidated balance sheet as of September 30, 2007. In addition, the Chapter 11 filing for reorganization created an event of default under certain of our lease agreements. The ability of our creditors to seek remedies to enforce their rights under the agreements described above is automatically stayed as a result of our bankruptcy filing and the creditors rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.
As required by SOP 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, we recorded the Debtors pre-petition debt instruments at the allowed claim amount, as defined by SOP 90-7. Accordingly, we accelerated the amortization of the related deferred debt issuance costs, the remaining discounts for the conversion feature and warrant and the discounts for the detachable warrant which resulted in a pre-tax expense of $2,127,918 included in reorganization items in our consolidated statement of operations for the three and nine months ended September 30, 2007.
An official committee of the Debtors unsecured creditors has been appointed in the Bankruptcy Cases and according to the provisions of the Bankruptcy Code, will have the right to be heard on all matters that come before the Bankruptcy Court. The Debtors are required to bear certain of the committees fees, costs and expenses, including those of their counsel and financial advisors.
10
While we continue our reorganization under Chapter 11, investments in our securities will be highly speculative. Although shares of our common stock continue to trade on the Over the Counter Bulletin Board under the symbol IWTT.OB, the trading prices of the shares may have little or no relationship to the actual recovery, if any, by the holders under any eventual disposition or outcome of the Bankruptcy Cases. The opportunity for any recovery by holders of our common stock under the Bankruptcy Cases is uncertain and shares of our common stock may be cancelled without any compensation pursuant to such plan.
Under the Bankruptcy Code, the Debtors have the right to assume or reject executory contracts (i.e., contracts that are to be performed by the contract parties after the Filing Date) and unexpired leases, subject to Bankruptcy Court approval and other limitations. In this context, assuming an executory contract or unexpired lease generally means that the Debtor will agree to perform its obligations and cure certain existing defaults under the contract or lease and rejecting it means that the Debtor will be relieved of its obligations to perform further under the contract or lease, which will give rise to an unsecured pre-petition claim for damages for the breach thereof. The Bankruptcy Court has authorized the Debtors to reject certain unexpired leases and executory contracts. As of the beginning of November 2007 the Company had not made any decisions on assuming or rejecting its leases and contracts.
On October 22, 2007, the Debtors filed their summary schedules of the assets and liabilities existing on the Filing Date with the Bankruptcy Court. The Bankruptcy Court has set a tentative general bar date of January 11, 2008 for non governmental agencies and March 4, 2008 for governmental agencies. This is the date by which most entities that assert a pre-petition claim against a Debtor must file a proof of claim in writing and in accordance with the order of the Bankruptcy Court. Differences between amounts recorded by the Debtors and claims filed by the creditors will be investigated and resolved as part of the proceedings in the Bankruptcy Cases. The ultimate number of allowed amounts of claims is not presently known.
The Debtors have received approval from the Bankruptcy Court to pay or otherwise honor certain of their pre-petition obligations, subject to certain restrictions, including employee wages, salaries, certain benefits and other employee obligations.
We anticipate that substantially all of the Debtors liabilities as of the Filing Date will be addressed under, and treated in accordance with, a plan of reorganization to be proposed to and voted on by their creditors in accordance with the provisions of the Bankruptcy Code. Although we intend to file and seek confirmation of such a plan, there can be no assurance as to when the plan will be filed or that the plan will be confirmed by the Bankruptcy Court and consummated. Nor can there be any assurance that we will be successful in achieving our restructuring goals, or that any measures that are achievable will result in sufficient improvement to our financial position. Accordingly, until the time that the Debtors emerge from bankruptcy, there will be no certainty about our ability to continue as a going concern. If a restructuring is not completed, we could be forced to sell a significant portion of our assets to retire debt outstanding or, under certain circumstances, to cease operations.
Debtor-In-Possession Financing Agreement
On September 11, 2007, the Bankruptcy Court approved a $3.6 million Senior Secured Super-Priority Debtor-In-Possession Credit Agreement (DIP Credit Agreement). This DIP credit facility provides funding to continue our operations without disruption by meeting our obligations to suppliers, customers, employees, and to fund bankruptcy related costs including professional fees incurred during the Chapter 11 reorganization process. See Note 5 for additional information.
Financial Statement Presentation
Our consolidated financial statements have been prepared in accordance with SOP 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code and on a going-concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of our bankruptcy filing, such realization of assets and liquidation of liabilities are subject to uncertainty. While operating as debtors in possession under the protection of Chapter 11 of the Bankruptcy Code all or some of the Debtors may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements, subject to Bankruptcy Court approval or otherwise as permitted in the ordinary course of business. Further, a plan of reorganization filed in its Bankruptcy Cases could
11
materially change the amounts and classifications of items reported in our historical consolidated financial statements.
Substantially all of the Debtors pre-petition debt is now in default due to the bankruptcy filing. As described below, the accompanying consolidated financial statements present the Debtors pre-petition debt of $23,916,914 within Liabilities Subject to Compromise. In accordance with SOP 90-7, following the Filing Date, we discontinued accruing interest expense that we were not required to pay under the terms of or Debtor-In-Possession financing agreement on debt classified as Liabilities Subject to Compromise. Contractual interest on all debt, including the portion classified as Liabilities Subject to Compromise, amounted to approximately $4.2 million for the nine months ended September 30, 2007. As required by SOP 90-7, the amount of the Liabilities Subject to Compromise represents our estimate of known or potential pre-petition claims to be addressed in connection with the Bankruptcy Cases. Such claims are subject to future adjustments. Adjustments may result from, among other things, normal ongoing payments to the secured lenders under the terms of the DIP agreement, negotiations with creditors, rejection of executory contracts and unexpired leases, and others of the Bankruptcy Court. Payment terms and amounts for these claims will be established in connection with the Bankruptcy Cases.
The liabilities subject to compromise in the consolidated balance sheet consisted of the following items at September 6, 2007 and September 30, 2007:
|
|
September 6, |
|
September 30, |
|
|
|
2007 |
|
2007 |
|
|
|
|
|
|
|
Accounts payable |
|
$15,071,542 |
|
$14,953,395 |
|
Revolving Line of Credit (Note 5) |
|
18,275,018 |
|
15,723,748 |
|
Revolving Note Payable (Note 5) |
|
5,000,000 |
|
5,000,000 |
|
Convertible Debt (Note 6) |
|
1,266,667 |
|
1,193,166 |
|
Term Note (Note 7) |
|
2,000,000 |
|
2,000,000 |
|
|
|
26,541,685 |
|
23,916,914 |
|
Other |
|
|
|
1,079,410 |
|
Liabilities Subject to Compromise |
|
$41,613,227 |
|
$39,949,719 |
|
Other includes accrued liabilities of $139,685 in interest, $131,359 in foreign currency rate fluctuations for transactions in accounts payable, $690,442 for operating leases and $117,924 in notes and capital leases.
Professional advisory fees and other costs directly associated with the reorganization are separately reported pursuant to SOP 90-7 as reorganization items. Professional fees include fees paid in connection with the DIP Credit Agreement, which were expensed in their entirety. Also included in reorganization items are provisions and adjustments to reflect the carrying value of certain pre-petition liabilities at their estimated allowable claim amounts. The debt valuation adjustments and the fees related to the DIP Credit Agreement are associated with the initial phase of the reorganization and generally represent one-time charges.
The reorganization items in the consolidated statement of operations for the three and nine months ended September 30, 2007 consisted of the following items:
12
|
|
Three Months Ended |
|
Nine Months Ended |
|
||
|
|
September 30, |
|
September 30, |
|
||
|
|
2007 |
|
2007 |
|
||
Debt valuation adjustments |
|
|
|
|
|
||
Discounts on the fair value of conversion feature |
|
$ |
712,786 |
|
$ |
712,786 |
|
Discounts on the fair value of the warrants and options |
|
1,181,058 |
|
1,181,058 |
|
||
Prepaid interest with common stock |
|
109,230 |
|
109,230 |
|
||
Accured Interest |
|
(620,513 |
) |
(620,513 |
) |
||
Unamortized Loan Costs |
|
124,844 |
|
124,844 |
|
||
|
|
1,507,405 |
|
1,507,405 |
|
||
Professional fees |
|
190,221 |
|
190,221 |
|
||
|
|
$ |
1,697,626 |
|
$ |
1,697,626 |
|
Management estimates that the Company could emerge from bankruptcy protection during the 1st quarter of 2008, assuming a plan of reorganization is approved. Management believes that reorganization under bankruptcy protection combined with additional cost reductions could allow the Company to emerge from bankruptcy in early 2008 and be profitable in 2008.
The Company is working with a business partner on co-sponsoring a reorganization plan to be submitted to the Bankruptcy Court and its creditors for approval. Under an order entered by the Bankruptcy Court on September 11, 2007, the Debtors were given the option to file on or before November 19, 2007 either a plan of reorganization or a motion to sell substantially all of its assets. The Company has not yet selected its course of action but notes that even if a motion to sell its assets is filed, the Debtors still have an exclusive right to subsequently file a plan of reorganization during its 120 day exclusive period which, absent extension by the Bankruptcy Court, expires on or about January 3, 2008. If an acceptable reorganization plan has not been agreed upon by November 19, 2007 then the Company will continue to move forward with the 363 Sales Process (Section 363 of the Bankruptcy Code permits a company to sell all or part of its assets outside of the ordinary course of business. The Section further governs treatment of lien holders and other claim or interest holders under a sale, which sale is under the supervision of and subject to approval of the Bankruptcy Court.). As required as part of its DIP Credit Agreement, the Company also has engaged a management group to oversee the 363Sale Process, which could mean a sale of the Companys business. However, if the Company is unable to find funding for a reorganization plan or does not obtain a 363 Sales offer then the Company could be forced into Chapter 7 liquidation.
NOTE 3 INVENTORIES
Inventories consisted of the following:
|
|
September 30, |
|
December 31, |
|
||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Tiles |
|
$ |
19,308,439 |
|
$ |
30,033,507 |
|
Inventory in transit |
|
316,161 |
|
1,166,353 |
|
||
|
|
19,624,600 |
|
31,199,860 |
|
||
Allowance for obsolescence |
|
299,443 |
|
525,000 |
|
||
|
|
$ |
19,325,157 |
|
$ |
30,674,860 |
|
Inventory in transit consists of merchandise purchased overseas, which is not yet received in the warehouse. The Company obtains legal title at the shipping point.
13
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
September 30, |
|
December 31, |
|
||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Furniture and fixtures |
|
$ |
319,052 |
|
$ |
318,128 |
|
Machinery and equipment |
|
1,193,623 |
|
1,154,913 |
|
||
Vehicles |
|
256,580 |
|
321,572 |
|
||
Office and computer equipment |
|
752,178 |
|
720,216 |
|
||
Leasehold improvements |
|
888,533 |
|
888,533 |
|
||
|
|
3,409,966 |
|
3,403,362 |
|
||
Less accumulated depreciation |
|
1,467,644 |
|
1,138,600 |
|
||
|
|
$ |
1,942,322 |
|
$ |
2,264,762 |
|
Depreciation expense for the three months ended September 30, 2007 and 2006 was $117,500 and $99,700, respectively and for the nine months ended September 30, 2007 and 2006 was approximately $357,400 and $308,600, respectively.
NOTE 5 NOTE PAYABLE, REVOLVING LINES OF CREDIT
Revolving Line of Credit
On September 5, 2006, the Company amended and restated the existing revolving line of credit agreement with its senior lender providing up to $26,500,000 of available borrowings with interest rates of either (1) LIBOR plus 3.00% or (2) the base rate plus 0.50% (interest rates ranging from 8.34375% to 8.375% at September 30, 2007) payable monthly. The line of credit is limited by a borrowing base which is comprised of a percentage of eligible accounts receivable and eligible inventories, as defined, and is collateralized by substantially all the assets of the Company. The balance due at September 30, 2007 and December 31, 2006 was $15,723,748 (excluding DIP Financing) and $24,370,278, respectively. At September 10, 2006 the Company was not in compliance with the minimum fixed charge coverage ratio and the minimum adjusted EBITDA covenants and received a notice of default from its primary lender on October 25, 2006. On November 2, 2006, the primary lender and the Company entered into a forbearance agreement whereby the bank agreed to forbear the exercise of its rights to demand payment until December 10, 2006, provided that the Company is not in default of any of its other obligations and the Company engages a management consultant to provide a comprehensive business analysis of the Companys operations. The Company continues to operate under the November 2nd, 2006 forbearance agreement. Effective June 9th, 2007, the Company entered into the Eighth Amendment to the Amended and Restated Loan Agreement with its senior credit Facility, Bank of America, N.A. The Eighth Amendment extended the term of its $26.5 million line of credit to September 10, 2007 and contained monthly minimum adjusted EBITDA covenant. The Company was not in compliance with its monthly EBITDA covenant during the first nine months of 2007.
In November 2006, the Company entered into an unsecured revolving line of credit agreement for its newly created subsidiary American Gres, Inc., with its primary lender providing up to $95,000 of available borrowings with an interest rate ranging from 11.24% to 24.76% at September 30, 2007 payable monthly. The balance due at September 30, 2007 and December 31, 2006 was $77,160 and $30,100, respectively.
Debtor-In-Possession Financing Agreement
On September 11, 2007, the Company entered into a Ratification and Amendment Agreement with Bank of America, N.A. to provide up to $3.6 million, plus and additional $1.0 contingency fund, in Senior Secured Super-priority Debtor-In-Possession (DIP) Credit Agreement. The agreement matures on December 19, 2007. The DIP Credit Agreement, as amended, was approved by the Bankruptcy Court on October 3, 2007.
The facility provides funding to continue our operations without disruption and to meet our obligations to our suppliers, customers and employees during the Chapter 11 reorganization process. The Company furnished Bank of America, N.A. a thirteen week budget projecting sales, cash receipts, inventory levels, operating cash disbursements, loan balance and loan availability. The agreement requires weekly budget to actual reporting and certification from the Companys CFO that no Material Budget Deviation has occurred. The Company is required to stay within 105%
14
of the cumulative budget to actual operating expenses. On September 30, 2007 the Company was in compliance with the budget to actual reporting and within the 105% cumulative budget to actual operating expense requirement.
Revolving Note Payable
On August 25, 2005, the Company issued a secured convertible revolving note in the aggregate amount of $5,000,000 resulting in net proceeds of $4,733,000 after debt issuance costs of $267,000. Interest accrued on the principal balance of the note at an annual interest rate equal to prime plus 1.5%. The note matures on August 25, 2008. The note was convertible into common stock of the Company at an initial conversion rate of $2.74 per share. Because the related loan documentation contained certain non-standard anti-dilution provisions and requirements to settle any conversion option with registered shares, the Company was required to account for the conversion option as an embedded derivative requiring separate accounting treatment in accordance with SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. Based upon the closing price per share of the Companys common stock on the date of issuance, the Company estimated the fair value of the embedded conversion option and classified $2,068,317 as a derivative liability that was adjusted to fair value at each reporting date with changes in fair value reported in earnings. In connection with the convertible notes, the Company issued to the holder of the note a five-year warrant to purchase 511,883 shares of the Companys common stock at an exercise price of $3.15 per share and an option to purchase 1,170,110 shares of the Companys common stock at an exercise price of $0.001 per share. Based upon the closing price per share of the Companys common stock on the date of issuance, the Company estimated the fair value of the warrant and option and classified $3,099,835 and $692,334, respectively, as derivative liabilities that were adjusted to fair value at each reporting date with changes in fair value reflected in operations. The fair values of the options, warrants, and embedded conversion option was estimated at the date of issuance using the Black-Scholes option-pricing model using the following weighted average assumptions: risk-free rate of 4.06%, dividend yields of 0%, and volatility factors of the expected market price of the Companys common stock of 60.79%.
On March 31, 2006, the parties entered into an amendment to certain agreements, dated August 25, 2005. As a result of the Amendment, the Company is no longer required to make any modifications to the fixed conversion price, or issue additional securities in the event the Company issues common stock at a price less than $2.74 per share
On July 21, 2006, the Company amended and restated the secured revolving note dated August 25, 2005 removing all conversion features of the original note. In addition the interest rate was modified as follows: August 25, 2006 thru July 20, 2006, annual interest rate equal to prime plus 1.5%; July 21, 2006 thru August 25, 2008, annual interest rate equal to 8.5%. A secured convertible minimum borrowing note, dated August 25, 2005 was voided. An amendment to the registration rights agreement removed all references to the convertibility of the Secured Revolving Note, removed all references to the secured convertible minimum borrowing note and removed the provision for liquidating damages as a remedy in the event the Company is unable to deliver registered shares. As a result, the provisions that required derivative liability classification in accordance with SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities: no longer exist. The holder of the note no longer has the right to convert any portion of principal or interest into common shares of the Company. The registration rights agreement was modified to remove all uneconomical provisions that previously resulted in the requirement to classify the warrants and options to purchase common shares covered by the registration rights agreement as derivative liabilities. As amended, the registration rights agreement does not preclude equity classification of the warrants and options in accordance with EITF 00-19.
Therefore, the fair value of the embedded derivative liability on July 21, 2006 in the amount of $1,646,269 was eliminated and the $1,345,640 relating to fair value of the options and warrants on the date of modification was recorded as additional paid in capital and the remaining $300,629, representing the fair value of the conversion feature was credited to operations.
The note is secured by a lien on substantially all the assets of the Company, subject to a first priority lien of the Companys primary financial lender.
15
The holder of the note had agreed that it will not convert the note, or exercise any warrant or option, into common stock in amounts that would cause the holders aggregate beneficial ownership of the Companys common stock to exceed 4.99%, without 120 days prior notice, or 19.199%, without stockholder approval.
The balance of the note net of unamortized discounts as of September 30, 2007 and December 31, 2006 are as follows:
|
|
September 30, |
|
December 31, |
|
||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Principal amount of notes |
|
$ |
5,000,000 |
|
$ |
5,000,000 |
|
Fair value - Conversion feature |
|
(1,764,629 |
) |
(1,764,629 |
) |
||
Fair value - Warrants and options |
|
(3,235,371 |
) |
(3,235,371 |
) |
||
Accretion of discount into interest expense |
|
3,333,312 |
|
2,222,208 |
|
||
Reorganization item - Debt valuation |
|
1,666,688 |
|
|
|
||
Balance, net of unamortized discounts (at September 30, 2007, balance is included in Liabilities Subject to Compromise) |
|
$ |
5,000,000 |
|
$ |
2,222,208 |
|
For the three months ended September 30, 2007 and 2006, interest expense related to the revolving credit line amounted to $426,650 and $729,270, respectively. For the nine months ended September 30, 2007 and 2006, interest expense related to the revolving credit line amounted to $1,436,435 and $1,641,333, respectively. On September 6, 2007 the accrued and unpaid default interest of $208,674 was credited to reorganization items as required by SOP 90-7 to revalue the debt instrument to the allowed claim amount.
Interest expense related to the secured revolving note for the three months ended September 30, 2007 and 2006 amounted to $234,624 and $112,541, respectively. Interest expense related to the secured revolving note for the nine months ended September 30, 2007 and 2006 amounted to $778,610 and $342,889, respectively. On September 6, 2007 the accrued and unpaid interest of $331,006 was credited to reorganization items as required by SOP 90-7 to revalue the debt instrument to the allowed claim amount.
Accretion of discounts for the conversion feature and warrant related to the secured revolving note resulted in charges to interest expense totaling $98,034 and $147,051 for the three months ended September 30, 2007 and 2006, respectively. Accretion of discounts for the conversion feature and warrant related to the secured revolving note resulted in charges to interest expense totaling $392,136 and $441,153 for the nine months ended September 30, 2007 and 2006, respectively. On September 6, 2007 the remaining unamortized discounts for the conversion feature and warrant of $588,221 were charged to reorganization items as required by SOP 90-7 to revalue the debt instrument to the allowed claim amount.
Accretion of discounts for the detachable warrant related to the secured revolving note resulted in charges to interest expense totaling $179,742 and $269,613 for three months ended September 30, 2007 and 2006, respectively. Accretion of discounts for the detachable warrant related to the secured revolving note resulted to charges to interest expense totaling $718,968 and $808,839 for nine months ended September 30, 2007 and 2006, respectively. On September 6, 2007 the remaining unamortized discounts for the detachable warrant of $1,078,467 was charged to reorganization items as required by SOP 90-7 to revalue the debt instrument to the allowed claim amount.
NOTE 6 NOTES PAYABLECONVERTIBLE DEBT
On February 10, 2006, the Company issued a secured convertible term note in the amount of $2,000,000 resulting in net proceeds of $1,919,500. Interest accrues on the principal balance of the note at an annual interest rate equal to prime plus 2.0%, payable monthly in arrears commencing on March 1, 2006. On September 30, 2007, the interest rate was 10.25%. The note requires monthly principal payments of $66,667 that commenced on August 1, 2006 and continuing until maturity. The note matures on February 10, 2009. The note is convertible into common stock of the Company at a fixed conversion rate of $2.17 per share. Based upon the closing price per share of the Companys common stock on the date of issuance, there was a beneficial conversion feature with an estimated intrinsic value of $553,593, which is presented as a discount on the note to be amortized into expense over the three year term of the loan using the effective interest method. In connection with the convertible note, the Company issued to the holder of the note a seven-year warrant to purchase 460,829 shares of the Companys common stock at an exercise price of $2.39 per share. The Company estimated the fair value of the warrant and allocated $455,943 of the proceeds of the debt to the warrant which is presented as a discount on the note to be amortized into interest expense over the three-year term of the note using the effective interest method. The aggregate discount allocated to the beneficial conversion feature and the options and warrants was recorded as additional paid in capital at the date of issuance. The fair value of
16
the warrant was estimated at the date of issuance using the Black-Scholes option-pricing model using the following assumptions: risk-free rate of 4.59%, dividend yields of 0%, and a volatility factor of the expected market price of the Companys common stock of 58.2%. The Company also issued to the holder, 221,198 shares of the Companys common stock as prepayment of interest in the amount of $486,636, which was calculated based upon the closing price per share of the Companys common stock on the date of issuance of $2.20 per share. The prepaid interest is presented as a discount on the note to be amortized into interest expense over the three year term using the effective interest method.
The note is secured by a lien on substantially all the assets of the Company, subject to a first priority lien of the Companys primary financial lender. The holder of the note has agreed that it will not convert the note, or exercise any warrant or option, into common stock in amounts that would cause the holders aggregate beneficial ownership of the Companys common stock to exceed 4.99%, without 120 days prior notice, or 19.199%, without stockholder approval.
The balance of the note, net of unamortized discounts as of September 30, 2007 and December 31, 2006 are as follows:
|
|
September 30, |
|
December 31, |
|
||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Principal amount of notes |
|
$ |
1,193,166 |
|
$ |
1,666,667 |
|
Fair value - Conversion feature |
|
(553,593 |
) |
(553,593 |
) |
||
Fair value - Warrants |
|
(942,579 |
) |
(942,579 |
) |
||
Accretion of discount to interest expense |
|
1,159,786 |
|
754,764 |
|
||
Reorganization item - Debt valuation |
|
336,386 |
|
|
|
||
|
|
|
|
|
|
||
Balance, net of unamortized discounts (at September 30, 2007, balance is included in Liabilities Subject to Compromise) |
|
$ |
1,193,166 |
|
$ |
925,259 |
|
Current |
|
|
|
800,007 |
|
||
Non-current |
|
|
|
125,252 |
|
||
|
|
$ |
|
|
$ |
925,259 |
|
Interest expense related to the note for the three months ended September 30, 2007 and 2006 was $30,981 and $70,673, respectively. Interest expense related to the note for the nine months ended September 30, 2007 and 2006 was $132,182 and $181,886, respectively. On September 6, 2007 the unamortized non cash interest of $109,230 was charged to reorganization items as required by SOP 90-7 to revalue the debt instrument to the allowed claim amount.
Accretion of discounts for the beneficial conversion feature and warrant resulted in charges to interest expense totaling $32,630 and $80,266 for the three months ended September 30, 2007 and 2006, respectively. Accretion of discounts for the beneficial conversion feature and warrant resulted in charges to interest expense totaling $149,616 and $207,476 for the nine months ended September 30, 2007 and 2006, respectively. On September 6, 2007 the remaining unamortized discounts for the conversion feature and warrant of $124,565 was charged to reorganization items as required by SOP 90-7 to revalue the debt instrument to the allowed claim amount.
Accretion of discounts for the detachable warrant resulted to charges to interest expense totaling $26,874 and $66,108 for the three months ended September 30, 2007 and 2006, respectively. Accretion of discounts for the detachable warrant resulted to charges to interest expense totaling $123,224 and $170,881 for the nine months ended September 30, 2007 and 2006, respectively. On September 6, 2007 the remaining unamortized discounts for the detachable warrant of $102,591 was charged to reorganization items as required by SOP 90-7 to revalue the debt instrument to the allowed claim amount.
NOTE 7 NOTES PAYABLEOTHER
On May 3, 2006, the Company issued a secured term note in the amount of $2,000,000 resulting in net proceeds of $1,924,500. Interest accrues on the principal balance of the note at an annual interest rate equal to 15%, payable monthly in arrears commencing on June 1, 2006. The note matured on May 3, 2007 and has been extended to June 3, 2007. In connection with the term note, the Company issued to the holder of the note a seven-year warrant to purchase
17
333,333 shares of the Companys common stock at an exercise price of $1.12 per share. The Company estimated the fair value of the warrant and allocated $222,809 of the proceeds of the debt to the warrant, which is presented as a discount on the note to be amortized into expense over the one-year term of the note. The fair value of the warrant was estimated at the date of issuance using the Black-Scholes option-pricing model using the following assumptions: risk-free rate of 5.06%, dividend yields of 0%, and a volatility factor of the expected market price of the Companys common stock of 59.18%.
The note is secured by a lien on substantially all the assets of the Company, subject to a first priority lien of the Companys primary financial lender.
The holder of the note has agreed that it will not convert the note, or exercise any warrant or option, into common stock in amounts that would cause the holders aggregate beneficial ownership of the Companys common stock to exceed 4.99%, without 120 days prior notice, or 19.199%, without stockholder approval.
The balance of the note as of September 30, 2007 and December 31, 2006, net of unamortized discounts is a follows:
|
|
September 30, |
|
December 31, |
|
||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Principal amount of notes |
|
$ |
2,000,000 |
|
$ |
2,000,000 |
|
Fair value - Warrants |
|
(222,809 |
) |
(222,809 |
) |
||
Accretion of discount into interest expense |
|
222,809 |
|
148,536 |
|
||
Balance, net of unamortized discounts (at September 30, 2007, balance is included in Liabilities Subject to Compromise) |
|
$ |
2,000,000 |
|
$ |
1,925,727 |
|
Interest expense related to the note amounted to $55,833 and $76,666 for the three months ended September 30, 2007 and 2006, respectively. Interest expense related to the note amounted to $206,666 and $124,999 for the nine months ended September 30, 2007 and 2006, respectively. On September 6, 2007 the accrued and unpaid interest of $80,833 was credited to reorganization items as required by SOP 90-7 to revalue the debt instrument to the allowed claim amount.
Accretion of discounts for the detachable warrant resulted in charges to interest expense totaling $0 and $37,134 for the three months ended September 30, 2007 and 2006, respectively. Accretion of discounts for the detachable warrant resulted in charges to interest expense totaling $74,273 and $92,835 for the nine months ended September 30, 2007 and 2006, respectively.
NOTE 8 STOCKHOLDERS EQUITY
Common Stock
During the nine months ended September 30, 2007, the Company issued 256,967 shares of common stock to several employees and consultants under the Stock Incentive Plan for services rendered, based on the closing stock price at the date of issuance, for a total of $441,909, resulting in an equivalent charge to operations.
On March 28, 2007, the Company signed a $2.0 million media campaign agreement with a third party consultant. Over a three year period the Company is to receive $5.0 million of advertising, event planning and sponsorship, convention support and other marketing support services at this third partys rate card rates. In return the Company issued one (1) million shares of its common stock (875,000 restricted shares issued to Global Media Funds and 125,000 unrestricted shares issued to an individual associated with Global Media Funds). The agreement has a default provision which could require the third party to return shares under certain conditions thus requiring the shares to be accounted for as if they had not been issued. Recognition of the shares will occur as services are rendered, at which point the Company will recognize advertising expense and the corresponding capital based on the fair market value of the Companys stock on the date the services are rendered. The one (1) million shares issued are not included on the Companys balance sheet or basic EPS (are included in diluted EPS to the extent they are not anti-dilutive) until the services have been rendered and recognized in the Companys financial statements. During the three and nine months ended September 30, 2007 no shares were recognized.
18
On April 9, 2007, the Company entered into an agreement with Mercatus & Partners, Limited, and issued 1,818,182 shares to an affiliate of Mercatus at a price to be determined at a later date. The funds were to be delivered within 45 days of issuance otherwise the Company may recall the shares and terminate the agreement at its discretion after the 45 days. At September 30, 2007 the Company has not received the purchase price under the agreement however has extended the payment date. The shares issued are not included on the Companys balance sheet or basic EPS (are included in diluted EPS to the extent they are not anti-dilutive) until the payment is received and recognized in the Companys financial statements. As discussed in the Note 11, the 1,818,182 shares were recalled on October 30, 2007.
Treasury Stock
On June 26, 2006, the Companys board of directors authorized an employee stock purchase program whereby the Company would purchase up to 150,000 shares of IWT Tesoros stock for resale to employees participating in the program. During the nine months ended September 30, 2007, the Company purchased 4,479 shares of IWT Tesoro common stock for a total cost of $9,933, at fair market value in the open market. On March 17, 2007 the Companys board of directors terminated the employee stock purchase plan and the 10,584 shares will be retired.
NOTE 9 INCOME TAXES
At September 30, 2007, the Company had net operating loss carry forwards for federal income tax purposes of approximately $15,800,000 which are available to offset future federal taxable income through 2027.
NOTE 10 STOCK-BASED COMPENSATION
On January 10, 2007, the Company granted to non-employee members of the Board of Directors, an aggregate of 50,000 options to purchase shares of its common stock with an exercise price equal to the fair market value of the Companys stock at the close of trading on January 10, 2007. These options have a contractual life of ten years and vest 50% immediately and 50% one year after the date of grant.
The fair value of each option awarded is estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on historical volatility of the Companys stock and historical volatility of the stock of similar companies, and other factors. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The expected life of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
The following assumptions were used to calculate the Companys options on the date of grant during the nine months ended September 30, 2007 and 2006, respectively:
|
|
Nine Months Ended September 30, |
|
||||
|
|
2007 |
|
2006 |
|
||
Dividend yield |
|
0 |
% |
0 |
% |
||
Expected volatility |
|
72.2 |
% |
58.8 |
% |
||
Risk-free interest rate |
|
4.7 |
% |
4.4 |
% |
||
Expected life of options (in years) |
|
5.5 |
|
5.5 |
|
||
Weighted-average grant-date fair value |
|
$ |
1.31 |
|
$ |
1.42 |
|
During the three month periods ended September 30, 2007 and 2006, the Company recognized additional compensation costs of $31,254 and $28,286, respectively. During the nine month period ended September 30, 2007 and 2006, the Company recognized additional compensation costs of $86,960 and $88,438, respectively.
As of September 30, 2007, there was $120,707 of unrecognized compensation cost related to share-based payments which is expected to be recognized over a weighted-average period of .92 years.
19
As of September 30, 2007 there were 806,082 shares granted and 652,249 shares outstanding.
Shares available for future stock option grants to employees and directors under the existing plan were 3,193,918 and 3,243,918, respectively, at September 30, 2007 and 2006. The aggregate intrinsic value of shares outstanding as of September 30, 2007 and 2006 were $1,160,711 and $1,095,211, respectively. The aggregate intrinsic value of options exercisable as of September 30, 2007 and 2006 were $977,392 and $863,005, respectively.
NOTE 11 SUBSEQUENT EVENT
On August 3, 2007 the Company notified Mercatus & Partners Limited that the shares were recalled for failure to remit the purchase price within 45 days as required under the agreement. On October 30, 2007 the Company received notification from its transfer agent that the 1,818,182 shares issued on April 9, 2007 to an affiliate of Mercatus & Partners Limited were voided.
20
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated financial statements include IWT Tesoro Corporation and its wholly-owned subsidiaries (collectively the Company).
IWT Tesoro Corporation was incorporated in the state of Nevada on May 3, 2000. On October 1, 2002, IWT Tesoro Corporation acquired 100% of the outstanding stock of International Wholesale Tile, Inc. (IWT) in exchange for 83% of its outstanding common stock in a transaction accounted for as a recapitalization of IWT. A total of 9,000,000 shares of common stock were issued for the acquisition. For accounting purposes, the acquisition has been treated as a capital transaction and as a recapitalization of International Wholesale Tile, Inc. The financial statements became those of International Wholesale Tile, Inc., with adjustments to reflect the changes in equity structure.
International Wholesale Tile, Inc. is principally a value added reseller of ceramic floor and wall covering products (primarily ceramic, porcelain and stone tile) to the new construction and remodeling industries for commercial and residential marketplaces. In addition to IWT, Tesoros primary operating subsidiary, Tesoro, has five additional wholly-owned subsidiaries. The Tile Club, Inc., formed in 2004, organized to acquire licensing, manufacturing and distribution rights; Tesoro Direct, Inc., formally known as Import Flooring Group, Inc. a wholly-owned subsidiary of The Tile Club formed in 2005 to develop an agency business; and American Gres, Inc. formed in November 2006, organized to produce domestic ceramic tile. The remaining two, IWT Tesoro Transport, Inc. and IWT Tesoro International, LTD., a Bermuda corporation are inactive.
Our executive offices
address is 191 Post Road West, Suite 10, Westport, CT 06880. Our telephone number is
(203) 221-2770. Our web site can be
found at http://www.iwttesoro.com. Information contained on our web site is not
part of this report.
REORGANIZATION UNDER CHAPTER 11 OF THE US BANKRUPTCY CODE
On September 6, 2007 (Filing Date), IWT Tesoro Corporation and two of its wholly-owned domestic subsidiaries, International Wholesale Tile, Inc. and American Gres, Inc., filed voluntary petitions for reorganization under the Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York (the Bankruptcy Court) under lead case no. 07-12841. These Chapter 11 cases are collectively referred to as the Bankruptcy Cases.
Tesoro Direct, Inc., a wholly-owned subsidiary of IWT Tesoro Corporation did not file a voluntary petition for reorganization however its assets and liabilities were included in the Schedules of Assets and Liabilities filed by International Wholesale Tile, Inc.
IWT Tesoro Transport, Inc. and The Tile Club. Inc., wholly-owned domestic subsidiaries and IWT Tesoro International, LTD a wholly-owned foreign subsidiary of IWT Tesoro Corporation did not file a voluntary petition for reorganization because their total assets equaled less than .04% of the Companys total consolidated assets. In addition these entities had no liabilities. However they are represented in the Consolidated Financial Statements.
IWT Tesoro Corporation and all of its subsidiaries are collectively the Debtors.
The Bankruptcy Cases are being jointly administered, with the Debtors managing their businesses in the ordinary course as debtors in possession subject to the supervision of the Bankruptcy Court. The Debtors intend to continue, normal business operations during the Bankruptcy Cases while they evaluate their businesses both from a financial and an operational perspective. Management is working with several financial partners to cosponsor a plan to reorganize and refinance the Debtors. While we cannot predict with precision how long the reorganization process will take, we expect it to take at least 4 to 6 months from the Filing Date. Under an order entered by the Bankruptcy Court on September 11, 2007, the Debtors were given the option to file on or before November 19, 2007 either a plan of reorganization or a motion to sell substantially all of its assets. The Company has not yet selected its course of action but notes that even if a motion to sell its assets is filed, the Debtors still have an exclusive right to subsequently file a plan of reorganization during its 120 day exclusive period which, absent extension by the Bankruptcy Court, expires on or about January 3, 2008.
Our continuation as a going concern is contingent upon, amongst other things, our ability (i) to comply with the terms and conditions of the Debtor-In-Possession (DIP) Credit Agreement described below; (ii) to obtain confirmation of a plan of
21
reorganization under the Bankruptcy Code; (iii) to reduce administrative, warehouse and interest costs and liabilities through the bankruptcy process; (iv) to return to profitability; (v) to generate sufficient cash flow from operations. These matters create uncertainty relating to our ability to continue as a going concern. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability of assets and classification of liabilities that might result from the outcome of these uncertainties. In addition, a plan of reorganization could materially change the amounts reported in our consolidated financial statements. Our consolidated financial statements as of September 30, 2007 do not give effect to all the adjustments to the carrying value of assets and liabilities that may become necessary as a consequence of reorganization under Chapter 11.
Our bankruptcy filing triggered the immediate acceleration of certain direct financial obligations, including, among others, an aggregate of $26,541,685 currently outstanding at September 6, 2007 on secured and unsecured notes issued on December 31, 2004 and August 25, 2005 (Note 5), February 10, 2006 (Note 6) and May 3, 2006 (Note 7). Such amounts are characterized as secured debt for purposes of the reorganization proceedings but no determination has yet been made as to whether the value of the secured assets is sufficient to cover the secured liabilities. The related obligations have been classified as liabilities subject to compromise in our consolidated balance sheet as of September 30, 2007. In addition, the Chapter 11 filing for reorganization created an event of default under certain of our lease agreements. The ability of our creditors to seek remedies to enforce their rights under the agreements described above is automatically stayed as a result of our bankruptcy filing and the creditors rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.
As required by SOP 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, we recorded the Debtors pre-petition debt instruments at the allowed claim amount, as defined by SOP 90-7. Accordingly, we accelerated the amortization of the related deferred debt issuance costs, the remaining discounts for the conversion feature and warrant and the discounts for the detachable warrant which resulted in a pre-tax expense of $2,127,919 included in reorganization items in our consolidated statement of operations for the three and nine months ended September 30, 2007.
An official committee of the Debtors unsecured creditors has been appointed in the Bankruptcy Cases and according to the provisions of the Bankruptcy Code, will have the right to be heard on all matters that come before the Bankruptcy Court. The Debtors are required to bear certain of the committees fees, costs and expenses, including those of their counsel and financial advisors.
While we continue our reorganization under Chapter 11, investments in our securities will be highly speculative. Although shares of our common stock continue to trade on the Over the Counter Bulletin Board under the symbol IWTT.OB, the trading prices of the shares may have little or no relationship to the actual recovery, if any, by the holders under any eventual disposition or outcome of the Bankruptcy Cases. The opportunity for any recovery by holders of our common stock under the Bankruptcy Cases is uncertain and shares of our common stock may be cancelled without any compensation pursuant to such plan.
Under the Bankruptcy Code, the Debtors have the right to assume or reject execurtory contracts (i.e., contracts that are to be performed by the contract parties after the Filing Date) and unexpired leases, subject to Bankruptcy Court approval and other limitations. In this context, assuming an executory contract or unexpired lease generally means that the Debtor will agree to perform its obligations and cure certain existing defaults under the contract or lease and rejecting it means that the Debtor will be relieved of its obligations to perform further under the contract or lease, which will give rise to an unsecured pre-petition claim for damages for the breach thereof. The Bankruptcy Court has authorized the Debtors to reject certain unexpired leases and executory contracts. As of the beginning of November the Company had not made any decisions on assuming or rejecting its leases and contracts.
On October 22, 2007, the Debtors filed their summary schedules of the assets and liabilities existing on the Filing Date with the Bankruptcy Court. The Bankruptcy Court has set a tentative general bar date of January 11, 2008 for non governmental agencies and March 4, 2008 for governmental agencies. This is the date by which most entities that assert a pre-petition claim against a Debtor must file a proof of claim in writing and in accordance with the order of the Bankruptcy Court. Differences between amounts recorded by the Debtors and claims filed by the creditors will be investigated and resolved as part of the proceedings in the Bankruptcy Cases. The ultimate number of allowed amounts of claims is not presently known.
The Debtors have received approval from the Bankruptcy Court to pay or otherwise honor certain of their pre-petition obligations, subject to certain restrictions, including employee wages, salaries, certain benefits and other employee obligations.
22
We anticipate that substantially all of the Debtors liabilities as of the Filing Date will be addressed under, and treated in accordance with, a plan of reorganization to be proposed to and voted on by their creditors in accordance with the provisions of the Bankruptcy Code. Although we intend to file and seek confirmation of such a plan, there can be no assurance as to when the plan will be filed or that the plan will be confirmed by the Bankruptcy Court and consummated. Nor can there be any assurance that we will be successful in achieving our restructuring goals, or that any measures that are achievable will result in sufficient improvement to our financial position. Accordingly, until the time that the Debtors emerge from bankruptcy, there will be no certainty about our ability to continue as a going concern. If a restructuring is not completed, we could be forced to sell a significant portion of our assets to retire debt outstanding or, under certain circumstances, to cease operations.
Debtor-In-Possession Financing Agreement
On September 11, 2007, the Bankruptcy Court approved a $3.6 million Senior Secured Super-Priority Debtor-In-Possession Credit Agreement (DIP Credit Agreement). This DIP credit facility provides funding to continue our operations without disruption by meeting our obligations to suppliers, customers, employees, and to fund bankruptcy related costs including professional fees during the Chapter 11 reorganization process. See Note 5 for additional information.
IWT Tesoros Market
Overall, the building material and flooring market have slowed considerably in the last year as a result of the declining new housing and remodeling markets in Florida and the Southeast where the company is primarily located. In addition the recent turmoil in the sub-prime mortgage markets is also negatively impacting the new housing and remodeling activity as a result of the inability of consumers to access funds to pay for new houses or significant remodeling projects. Although the Company continues to expect long term above average growth in the housing and flooring tile market, the Company cannot predict when or if the market will begin to improve.
Business Strategy
The Company is pursuing several strategies to emerge from Bankruptcy protection. The options range from restructuring the current operating structure to a 363 sale of the business to a third party. The Company believes that a key to any strategy will be to continue the cost reduction program in order to help move the Company back to being profitable. However, the Company makes no assurances that its strategies will be successful or be profitable, or if successful, that its profitably will be attained within its projected time frame.
Profitability
The Companys net loss for the three months ended September 30, 2007 is approximately $ 3.3 million compared to a $1.4 million loss for the three months ended September 30, 2006. The Companys net loss for the nine months ended September 30, 2007 is approximately $7.5 million versus a $0.1 million net loss for the nine months ended September 30, 2006. The 2007 results include $1.7 million reorganization charges in the third quarter of 2007 related to the Bankruptcy. The 2006 results include a 4.6 million gain from the change in the fair value of a derivative security. This follows net losses of approximately $3.4 million, $4.3 million and $1.2 million for the years ended December 31, 2006, 2005 and 2004, respectively.
Revenue in the third quarter 2007 decreased 29% to $10.8 million from $15.2 million in the 2006 third quarter. Revenue decreased 16.4% to $40.3 million for the nine months ended September 30, 2007 from $48.1 million for the nine months ended September 30, 2006. The decrease in revenue is primarily the result of the slower housing market in Florida and the Southeast. Some of the decline in sales is also attributable to the uncertainty created from the Companys bankruptcy filing. Also as a result of the Companys difficult financial condition in the third quarter we were unable to secure enough products from many key vendors and out-of-stock positions have occurred in a number of key product lines in the last three months. However, the DIP Credit Agreement secured provided the ability to purchase product but it typically takes four to eight weeks to get the product from suppliers to the Companys warehouses.
Gross margin for the three months ended September 30, 2007 was 37.9% of net sales compared to 36.9 % for the three months ended September 30, 2006. Gross margin for the nine months ended September 30, 2007 remained consistent with the prior quarter at 36.3% of net sales compared to 36.6% for the same nine months of 2006. During the nine months ending September 30, 2007 the Company has been able to offset the increased sales of its lower margin discontinued products and
23
the decreased sales of its lower margin truckload sales with continued sales of its higher margin lines. However in the three months ended September 30, 2007 the Company had a decrease in both discontinued product lines and truckload sales, which resulted in a significant increase in the gross margin.
Cost Reduction Program
On June 18, 2007, the Company announced salary and cost reductions totaling $1.3 million annually. As of August 1, 2007 these reductions were implemented. The Company has identified an additional $1.2 million of potential cost reduction opportunities primarily associated with reducing the size of its presence in some of its locations. As a result of the $11.3 million reduction in inventory in 2007, the Company has created excess space in its warehouses. It currently is negotiating with certain of its leasors to reduce its commitments to space and rent, particularly in Florida. The lease for its Ohio space ends as of December 31, 2007 and will not be renewed. The warehouse space the Company leases in California is based on the amount of space actually used and thus is self liquidating. In addition, on July 2, 2007, the Company implemented, a per day handling fee that is expected to generate approximately $1 million annually to offset the increased warehousing and distribution costs. The Company is also looking at additional cost saving opportunities associated with its Bankruptcy filing. The Company expects that the savings associated with these additional changes will not commence until the first quarter of 2008.
Liquidity
As a result of the recent decline in sales and better management of inventory ($11.3 million reduction during the first nine months of 2007) the Company generated $8.3 million of cash from operations in the first nine months of 2007 versus a $6.6 million use of cash from operations in the nine months of 2006. Inventory turns for the first nine months of 2007 (on an annualized basis) increased to 1.8 times versus 1.3 for the twelve months ended December 31, 2006.
As more fully discussed in Note 5, on September 11, 2007 the Company secured up to $3.6 million, plus a $1.0 million contingency fund, of DIP financing from its senior credit lender, Bank of America. The additional funds will allow the Company to continue to operate on an on-going basis and secure out-of-stock material from its vendors.
Conclusions
Management estimates that the Company could emerge from bankruptcy protection during the 1st quarter of 2008, assuming a plan of reorganization is approved. Management believes that reorganization under bankruptcy protection combined with additional cost reductions could allow the Company to emerge from bankruptcy in early 2008 and be profitable in 2008.
The Company is working with a business partner on co-sponsoring a reorganization plan to be submitted to the Bankruptcy Court and its creditors for approval. Under an order entered by the Bankruptcy Court on September 11, 2007, the Debtors were given the option to file on or before November 19, 2007 either a plan of reorganization or a motion to sell substantially all of its assets. The Company has not yet selected its course of action but notes that even if a motion to sell its assets is filed, the Debtors still have an exclusive right to subsequently file a plan of reorganization during its 120 day exclusive period which, absent extension by the Bankruptcy Court, expires on or about January 3, 2008. If an acceptable reorganization plan has not been agreed upon by November 19, 2007 then the Company will continue to move forward with the 363 Sales Process (Section 363 of the Bankruptcy Code permits a company to sell all or part of its assets outside of the ordinary course of business. The Section further governs treatment of lien holders and other claim or interest holders under a sale, which sale is under the supervision of and subject to approval of the Bankruptcy Court.). As required as part of its DIP Credit Agreement, the Company also has engaged a management group to oversee the 363Sale Process, which could mean a sale of the Companys business. However, if the Company is unable to find funding for a reorganization plan or does not obtain a 363 Sales offer then the Company could be forced into Chapter 7 liquidation.
Results of Operations for the three months ended September 30, 2007, 2006 and 2005.
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto that appear elsewhere in this document. The table below sets forth certain operating data for the periods indicated. Percentages are relative to total revenue for the periods indicated.
24
|
|
Results of Operations for the |
|
|||||||
|
|
Three Months Ended September 30, |
|
|||||||
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
10,795,603 |
|
$ |
15,173,449 |
|
$ |
14,006,762 |
|
Cost of Goods Sold |
|
6,699,621 |
|
9,578,329 |
|
8,277,926 |
|
|||
|
|
|
|
|
|
|
|
|||
Gross Margin |
|
4,095,982 |
|
5,595,120 |
|
5,728,836 |
|
|||
Gross Margin Percentage |
|
37.9 |
% |
36.9 |
% |
40.9 |
% |
|||
Operating Expenses |
|
$ |
4,538,298 |
|
$ |
5,670,371 |
|
$ |
5,816,085 |
|
|
|
42.0 |
% |
37.4 |
% |
41.5 |
% |
|||
Loss from operations |
|
(442,316 |
) |
(75,251 |
) |
(87,249 |
) |
Quarter ended September 30, 2007 Compared to Quarter September 30, 2006
Net sales for the three months ended September 30, 2007 decreased approximately $4,377,800 or 28.9% over the reported net sales for the three months ended September 30, 2006. Management believes that the decline in sales for the three months ended September 30, 2007 was due primarily to the slowing housing market throughout the United States and the uncertainty surrounding its Bankruptcy filing.
Gross margin for the three months ended September 30, 2007 was approximately $4,096,000 or 37.9% of net sales compared to $5,595,000 or 36.9% of net sales for the three months ended September 30, 2006. The increase in gross margin is a result of limited sales of discontinued lower margin product lines, truckload and home center sales.
Our operating expenses for the three months ended September 30, 2007 were approximately $4,538,300 or 42.0% of net sales compared to $5,670,000 or 37.4% of net sales for the three months ended September 30, 2006. The increase in our operating expense ratio for the three months ended September 30, 2007 compared to the three months ended September 30, 2006, was caused by fixed overhead costs that could not be reduced at a rate equal to the 29% decrease in sales.
Results of Operations for the nine months ended September 30, 2007, 2006 and 2005.
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto that appear elsewhere in this document. The table below sets forth certain operating data for the periods indicated. Percentages are relative to total revenue for the periods indicated.
|
|
Results of Operations for the |
|
||||||||
|
|
Nine Months Ended September 30, |
|
||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ |
40,268,664 |
|
$ |
48,145,483 |
|
$ |
42,141,461 |
|
|
Cost of Goods Sold |
|
25,693,656 |
|
30,544,590 |
|
25,443,315 |
|
||||
|
|
|
|
|
|
|
|
||||
Gross Margin |
|
14,575,008 |
|
17,600,893 |
|
16,698,146 |
|
||||
Gross Margin Percentage |
|
36.2 |
% |
36.6 |
% |
39.6 |
% |
||||
Operating Expenses |
|
$ |
16,266,803 |
|
$ |
18,121,981 |
|
$ |
16,113,525 |
|
|
|
|
40.4 |
% |
37.6 |
% |
38.2 |
% |
||||
Income (loss) from operations |
|
$ |
(1,691,795 |
) |
$ |
(521,088 |
) |
$ |
584,621 |
|
|
Nine months ended September 30, 2007 Compared to the nine months ended September 30, 2006
Net sales for the nine months ended September 30, 2007 decreased approximately $7,876,800 or 16.4% over the reported net sales for the nine months ended September 30, 2006. Management believes that the decline in sales for the nine months ended September 30, 2007 was due primarily to the slowing housing market throughout the United States.
25
Gross margin for the nine months ended September 30, 2007 was approximately $14,575,000 or 36.2% of net sales compared to $17,600,900 or 36.6% of net sales for the nine months ended September 30, 2006. The slight decline in gross margin is a result of aggressively reducing our inventory levels including the sale of discontinued lower margin product lines during the first half of 2007.
Our operating expenses for the nine months ended September 30, 2007 were approximately $16,266,800 or 40.4% of net sales compared to $18,122,000 or 37.6% of net sales for the nine months ended September 30, 2006. The increase in our operating expense ratio for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006, was caused by fixed overhead costs that could not be reduced at a rate equal to the 16.4% decrease in sales.
Changes in Financial Position for the nine months ended September 30, 2007 from the year ended December 31, 2006
Current assets at September 30, 2007 are approximately $28.6 million compared to $41.0 million at December 31, 2006, a decrease of approximately $12.4 million. The net decrease is primarily attributable to a decrease in inventory of approximately $11.3, million and a decrease in accounts receivable of approximately $1.3 million. The decrease in inventory relates to our continued efforts to improve our inventory turnover rate and utilization of resources.
Total liabilities at September 30, 2007 are approximately $42.7 million compared to $48.7 million at December 31, 2006, a decrease of approximately $6.0 million. The decrease is attributable to a decrease in accounts payable of approximately $2.7 and a decrease in our revolving line of credit of approximately $7.2 million. As a result of the bankruptcy filing liabilities of approximately $2.0 million associated with unamortized discounts related to the Laurus debt were charged to Reorganization Items in the Statement of Operations during the three and nine months ended September 30, 2007. The net decreases are consistent with our decrease in inventory, improving the turnover rate and utilization of resources.
Liquidity and Capital Resources
We had cash balances of approximately $580,701 at September 30, 2007 and $157,700 at December 31, 2006.
The cash provided by operations during the nine months ended September 30, 2007 were approximately $8.3 million compared to the cash used in operations of $6.6 million for the nine months ended September, 30 2006. The $14.9 million increased inflow is primarily attributable to a decrease in inventory.
Net cash used in investing activities during the nine months ended September 30, 2007 was approximately $37,000 compared to $592,000 for the nine months ended September 30, 2006. Capital expenditures in the nine months ended September 30, 2006 were higher than normal due to the purchase of tile finishing equipment.
Net cash used in financing activities during the nine months ended September 30, 2007 was approximately $7.9 million compared to the net cash provided of $6.6 million during the nine months ended September 30, 2006. The approximate $14.5 million change in financing activities is attributable to no new financing arrangements in the nine months ended September 30, 2007 as compared to a $4.0 million financial arrangement during the nine months ended September 30, 2006 along with payments of approximately $7.4 million to our commercial lender in 2007 versus $3.0 million of additional draw in 2006 in the same time period of 2006.
Critical Accounting Policies
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles, which require us to make estimates and assumptions about future events and their impact on amounts reported in our Consolidated Financial Statements and related Notes. Specifically, for the period ended September 30, 2007, the Company prepared its consolidated financial statements in accordance with SOP 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code and on a going-concern basis, which considers the financial evolution of the bankruptcy proceedings and the ongoing operations of the business. Since future events and their impact cannot be determined with certainty, and estimates require subjectivity, the actual results will inevitably differ from our estimates. These differences could be material to the financial statements.
26
We believe that our application of accounting policies, and the estimates that are inherently required by these policies, are reasonable. We believe that significant accounting policies are described in Note 1 to the consolidated financial statements included in the Companys Annual Report on Form 10-K, for the year ended December 31, 2006 and the FIN 48 Accounting for Uncertainty in Income Taxes policy adopted January 1, 2007, as described in Note 1 herein, may involve a higher degree of judgment and complexity.
Forward-Looking Information
Some statements made in this Quarterly Report on Form 10-Q, are forward-looking statements and are not historical facts. For example, statements regarding our financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about future demand for our services and products, supply, costs, marketing and pricing factors are all forward-looking statements. When we use words like intend, would, anticipate, believe, estimate, plan or expect or the negative of these terms and similar expressions, we are making forward- looking statements. You should be aware that these forward-looking statements are subject to risks and uncertainties. Additionally, our forward-looking statements speak only as of the date of this report. Other than as required by law, we undertake no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements include, among other things are changes in the industry, energy costs, timing and level of capital expenditures and introduction of new products.
ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Quantitative and Qualitative Disclosures about Market Risk
Information about the Companys exposure to market risk was disclosed in its Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2006, which was filed with the Securities and Exchange Commission on April 2, 2007. No material quantitative or qualitative changes in market risk exposure have occurred since the date of that filing.
ITEM 4CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, Tesoros management, with participation of the Companys principal executive officer and principal financial officer, have performed an evaluation of the Companys disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) to ensure that information required to be disclosed by Tesoro in the reports that Tesoro files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SECs rules and forms.
Based on that evaluation, Tesoros principal executive officer and principal financial officer have concluded that its disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SECs rules and forms. At this time, management has determined that the Companys current system of disclosure controls and procedures are sufficient i) to ensure that data errors, control problems, or acts of fraud are detected and ii) to confirm that appropriate corrective action, including process improvements, is undertaken in a timely manner.
The Company is in the process of preparing its compliance with Section 404 of Sarbanes-Oxley with respect to its Internal Control Evaluation and Report requirements. The Company has been focusing on those aspects of its controls that are most salient and which it can undertake. Additionally it is focusing on controls that maintain the integrity of its financial statements. Attached as Exhibits 31.1 and 31.2 to this Quarterly Report are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange Act). This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications.
27
We are not a party to any material pending legal proceedings and, to the best of our knowledge, no such action by or against us are contemplated, threatened or expected.
The risk factors are substantially the same as those included in our Annual Report of Form 10-K and Form 10-K/A, filed with the Securities and Exchange Commission on April 2 and April 3, 2007, respectively.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales.
In connection with a $2.0 million media campaign agreement with Global Media Fund (GMF), the Company issued 875,000 shares of its restricted stock to GMF. The sale of these securities were deemed to be exempt from registration under the Securities act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereafter, as transactions by an issuer not involving a public offering. GMF represented its intention to acquire the securities for investment only and not with a view for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and instruments issued in such transactions. The issuance of these securities was made without general solicitation or advertising. GMF is an accredited investor and had adequate access, through their relationship with the Company, to information, including financial, about the Company. This transaction did not involve any underwriters, underwriting discounts or commissions.
On April 9, 2007, the Company entered into an agreement with Antares Trading Fund Mercatech SA and issued 1,818,182 shares at a price to be determined at a later date. The funds were to be delivered within 45 days of issuance and the Company may recall the shares and terminate the agreement at its discretion after the 45 days. At September 30, 2007 the Company has not received the purchase price under the agreement however has extended the payment date. The shares issued are not included on the Companys balance sheet or basic EPS (are included in diluted EPS to the extent they are not anti-dilutive) until the payment is received and recognized in the Companys financial statements. Subsequent to the end of the quarter, Tesoro notified all parties that the certificate representing the shares is to be returned immediately to our transfer agent. On October 30, 2007, the certificate representing the 1,818,182 shares were voided and canceled.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
On October 25, 2006, IWT Tesoro Corporation and its subsidiaries received a letter from its senior credit facility, Bank of America, N.A. stating that certain events of default had occurred and are continuing under its credit facility agreements including that the Company did not attain its minimum EBITDA for the months ended August 2006 and September 2006, nor did the Company reach its minimum fixed charge coverage ratio for the period ended September 30, 2006. On November 2, 2006 the Company and Bank of America executed a forbearance agreement, whereby the Bank agreed to forbear the exercise of its rights to December 10, 2006 provided (i) that the Company is not in default of any of its other obligations, and (ii) the Company engages a management consultant to provide a comprehensive business analysis of the Companys operations. Effective June 9, 2007, the Company entered into the Eighth Amendment to the Amended and Restated Loan Agreement with its senior credit Facility, Bank of America, N.A. The Eighth Amendment extends the term of its $26.5 million line of credit to September 10, 2007 and contains monthly minimum adjusted EBITDA covenant. The Company was not in compliance with its monthly EBITDA covenant during the nine months ended September 30, 2007.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
None
28
(a) Exhibits
Exhibit |
|
Description |
3.1 |
|
Articles of Incorporation (filed as an Exhibit to the Companys 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 Companys Report on Form 8-K, filed with the Securities and Exchange Commission on October 1, 2002) |
3.2.2 |
|
Amended and Restated Bylaws (filed as an Exhibit to the Companys Report on Form 8-K, filed with the Securities and Exchange Commission on February 4, 2003) |
3.3.2 |
|
Audit Committee Charter (filed as an Exhibit to the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys Registration Statement, filed with the Securities and Exchange Commission on April 11, 2003) |
10.3 |
|
2001 Ponca Acquisition Corporation Stock Incentive Plan. (filed as an Exhibit to the Companys 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 Companys 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 Companys 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 Ponca Acquisition Corporation effective October 1, 2002 (filed as an Exhibit on Form 8-K, filed with the Securities and Exhibit Commission on October 15, 2002). |
10.9 |
|
Form of Indemnity Agreement (filed as an Exhibit to the Companys Registration Statement, filed with the Securities and Exchange Commission on April 11, 2003) |
10.10 |
|
Employment Agreement between International Wholesale Tile, Inc. and David W. Whitwell (exhibits omitted) (filed as an Exhibit to the Companys 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 David W. Whitwells Employment Agreement with the exception of the employees 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 David W. Whitwells Employment Agreement with the exception of the employees name and address) |
10.13 |
|
Subordination Agreement between Congress Financial Corporation (Florida). and David W. Whitwell (filed as an Exhibit to the Companys 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 David W. Whitwells Subordination Agreement with the exception of the employees 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 David W. Whitwells Subordination Agreement with the exception of the employees name and address) |
10.16 |
|
Amended and Restated Loan and Security Agreement between by and between Fleet Capital Corporation, IWT Tesoro Corporation and International Wholesale Tile, Inc. effective December 31, 2004 (filed as an Exhibit to the Company Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 15, 2005). |
10.17 |
|
Form of Security Agreement dated as of August 25, 2005, by and between IWT Tesoro Corporation and International Wholesale Tile, Inc., on the one hand, and Laurus Master Fund Ltd., on the other hand (without exhibits). (filed as an exhibit to the Companys Report on Form 8-K filed with the Securities and Exchange Commission on August 25, 2005) |
29
10.18 |
|
Form of Secured Term Note, dated as of August 25, 2005, by Tesoro and IWT in favor of Laurus Master Fund, Ltd. (filed as an exhibit to the Companys Report on Form 8-K filed with the Securities and Exchange Commission on August 25, 2005) |
10.19 |
|
Form of Subsidiary Guaranty, dated as of August 25, 2005, by the Tesoros subsidiaries in favor of Laurus Master Fund (filed as an exhibit to the Companys Report on Form 8-K filed with the Securities and Exchange Commission on August 25, 2005) |
10.20 |
|
Form of Common Stock Purchase Warrant, by Tesoro in favor of Laurus Master Fund., Ltd. dated August 25, 2005 (filed as an exhibit to the Companys Report on Form 8-K filed with the Securities and Exchange Commission on August 25, 2005) |
10.21 |
|
Form of Funds Escrow Agreement dated August 25, 2005 (filed as an exhibit to the Companys Report on Form 8-K filed with the Securities and Exchange Commission on August 25, 2005) |
10.23 |
|
Minimum Borrowing Note in favor of Laurus date August 25, 2005 (filed as an exhibit to the Company registration statement on Form S-1, filed with the Securities and Exchange Commission on September 21, 2005) |
10.24 |
|
Option Agreement to Laurus dated August 25,
2005 (filed as an exhibit to the Company registration statement on |
10.26 |
|
Form of Securities Purchase Agreement dated as of February 10, 2006, between IWT Tesoro Corporation and Laurus Master Fund Ltd. (without exhibits) (filed as an exhibit to the Company periodic report on Form 8-K, filed with the Securities and Exchange Commission on February 14, 2006). |
10.27 |
|
Form of Secured Term Note dated as of February 10, 2006, in favor of Laurus Master Fund Ltd. (filed as an exhibit to the Company periodic report on Form 8-K, filed with the Securities and Exchange Commission on February 14, 2006). |
10.28 |
|
Form of Common Stock Purchase Warrant, by Tesoro in favor of Laurus Master Fund, Ltd., dated as of February 10, 2006, (filed as an exhibit to the Company periodic report on Form 8-K, filed with the Securities and Exchange Commission on February 14, 2006). |
10.29 |
|
Form of Registration Rights Agreement dated as of February 10, 2006, between IWT Tesoro Corporation and Laurus Master Fund Ltd. (filed as an exhibit to the Company periodic report on Form 8-K, filed with the Securities and Exchange Commission on February 14, 2006). |
10.30 |
|
Ratification and Reaffirmation Agreement by IWT Tesoro Corporation and each of its subsidiaries dated February 10, 2006, (filed as an exhibit to the Company periodic report on Form 8-K, filed with the Securities and Exchange Commission on February 14, 2006). |
10.31 |
|
Form of Registration Rights Agreement dated as of August 25, 2005, by and between IWT Tesoro Corporation one hand, and Laurus Master Fund Ltd., as amended December 9, 2005, and as further amended on April 15, 2006 (filed as an exhibit to the Companys periodic report on Form 8-K/A, filed with the Securities and Exchange Commission on May 8, 2006) |
10.32 |
|
Amended and Restated Registration Rights Agreement dated May 3, 2006 between IWT Tesoro Corporation and Laurus Master Funds, Ltd. (filed as an exhibit to the Companys periodic report on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2006). |
10.33 |
|
Form of Securities Purchase Agreement dated May 3, 2006 between Tesoro and Laurus Master Fund dated May 3, 2006 (filed as an exhibit to the Companys periodic report on Form 8-K, filed with the Securities and Exchange Commission on May 9, 2006). |
10.34 |
|
Form of Common Stock Purchase Warrant by Tesoro in favor of Laurus Master Funds., Ltd. (filed as an exhibit to the Companys periodic report on Form 8-K, filed with the Securities and Exchange Commission on May 9, 2006). |
10.35 |
|
Amended and Restated Registration Rights Agreement dated May 3, 2006 between IWT Tesoro Corporation and Laurus Master Funds, Ltd. (filed as an exhibit to the Companys periodic report on Form 8-K, filed with the Securities and Exchange Commission on May 9, 2006). |
10.36 |
|
Reaffirmation and Ratification Agreement dated May 3, 2006 by Tesoro and its subsidiaries (filed as an exhibit to the Companys periodic report on Form 8-K, filed with the Securities and Exchange Commission on May 9, 2006). |
10.37 |
|
Second Amended and Restated Senior Subordination Agreement between Laurus Master Fund, Ltd. and Bank of America, N.A dated May 3, 2006 (filed as an exhibit to the Companys periodic report on Form 8-K, filed with the Securities and Exchange Commission on May 9, 2006). |
10.38 |
|
Amendment dated as of March 31, 2006 to the August 25, 2006 $3.0 million Minimum Borrowing Note (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on May 9, 2006) |
10.39 |
|
Amended and Restated Securities Agreement effective July 21, 2006 (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on August 21, 2006). |
10.40 |
|
Amended and Restated $5.0 million revolving note effective August 25, 2005, as amended and restated from time to time (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on August 21, 2006). |
30
10.41 |
|
Amended and Amended and Restated Registration Rights Agreement dated July 21, 2006 (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on August 21, 2006). |
10.42 |
|
Fifth Amendment to the Amended and Restated Loan and Security Agreement dated as of September 5, 2006 (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on September 6, 2006). |
10.43 |
|
Form of Amended and Restated Credit Note in the principal amount $26.5 million dated as of September 5, 2006 (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on September 5, 2006). |
10.44 |
|
Form of Forbearance Agreement between Bank of America and Tesoro, dated December 2, 2006 (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on December 3, 2006). |
10.45 |
|
Form of Project Development and Management Agreement dated November 20, 2006 (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on November 21, 2006). |
10.46 |
|
Form of Amended and Restated Loan Agreement with Bank of America and the Revolving Line of Credit, each dated December 10, 2006 filed as an exhibit to the Companys periodic filing on Form 8-K, (filed with the Securities and Exchange Commission on January 8, 2007). |
10.47 |
|
Form of Employment Agreement between David W. Whitwell and Tesoro dated January 2, 2007 (filed as an exhibit to the Companys periodic filing on Form 8-K, (filed with the Securities and Exchange Commission on January 8, 2007). |
10.48 |
|
Form of Amended and Restated Loan Agreement with Bank of America and the Revolving Line of Credit, each dated March 10, 2007 filed as an exhibit to the Companys periodic filing on Form 8-K, (filed with the Securities and Exchange Commission on March 12, 2007). |
10.49 |
|
Form of Securities Purchase Agreement with Global Media Fund, Inc., dated March 26, 2007 (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on April 4, 2007). |
10.50 |
|
Form of Proposal/Memorandum of Understanding with Mercatus & Partners, Limited, dated April 9, 2007 (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on April 12, 2007). |
10.51 |
|
Form of Amended and Restated Loan Agreement with Bank of America and the Revolving Line of Credit, each dated June 9, 2007 filed as an exhibit to the Companys periodic filing on Form 8-K, (filed with the Securities and Exchange Commission on June 8, 2007). |
10.52 |
|
Form of Term Sheet between IWT Tesoro Corporation and KMA Capital Partners, Inc. dated August 15 2007 (Exhibits omitted) (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on August 16, 2007) |
10.53 |
|
Form of letter to suppliers and freight vendors discussing the effect of having filed Chapter 11 of the Bankruptcy Code (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on September 11, 2007)) |
10.54 |
|
Form of letter to employees discussing the effect of having filed Chapter 11 of the Bankruptcy Code (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on September 11, 2007)) |
10.55 |
|
Form of letter to customers discussing the effect of having filed Chapter 11 of the Bankruptcy Code (filed as an exhibit to the Companys periodic filing on Form 8-K, filed with the Securities and Exchange Commission on September 11, 2007)) |
16 |
|
Letter from Kantor Sewell & Oppenheimer, P.A., concurring with statements concerning their resignation (filed as an exhibit to the Company Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2004). |
21 |
|
Subsidiaries of Registrant (filed as an Exhibit to the Company registration statement on Form S-1, filed with the Securities and Exchange Commission on September 21, 2005 |
31.1 |
|
Certification of Henry J. Boucher, Jr., Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.* |
31.2 |
|
Certification of David W. Whitwell, 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 David W. Whitwell, Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.* |
* Included in this filing. Exhibits are available without charge, upon request of IWT Tesoro.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
IWT TESORO CORPORATION |
|
|
|
|
|
|
|
November 15, 2007 |
/s/ Henry J. Boucher, Jr. |
|
|
Henry J. Boucher, Jr., President |
|
|
|
|
November 15, 2007 |
/s/ David W. Whitwell |
|
|
David W. Whitwell, Chief Financial Officer |
32