UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996 Commission File Number 000-18389
WORLD WIDE STONE CORPORATION
NEVADA 33-0297934
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
2150 W. University Drive, Tempe, AZ 85281
(Address of Principal Executive Offices) ( Zip Code)
602-966-0047
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former name, former address and former fiscal year)
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 period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes_X____ No_____
As of June 30, 1996, there were 34,415,868 shares of common
stock outstanding.
Documents Incorporated by Reference
None
(Page 1 of 9 Pages)
<PAGE>
World Wide Stone Corporation and Subsidiaries
Index to Form 10-Q
For the Quarter Ended June 30, 1996
Part I. Financial Information
Item 1. Financial Statements
CPA's Certification.......................................3
Consolidated Balance Sheet
June 30, 1996 and December 31, 1995.......................4
Consolidated Statement of Operations (Income)
Six months ended June 30, 1996 and 1995...................6
Consolidated Statement of Cash Flows
Six months ended March 31, 1996 and 1995..................7
Notes to Financial Statements.............................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............8
Part II. Other Information
Item 1 Legal Proceedings.........................................9
(Page 2 of 9 Pages)
<PAGE>
Murray Peck, P.C.
Certified Public Accountants
5110 North Central, Suite 320
Phoenix, Arizona 85012
Phone (602) 274-1960 - Fax (602) 274-1986
To the Board of Directors
World Wide Stone Corporation
We have compiled the accompanying Balance Sheets of World Wide Stone Corporation
as of June 30, 1996 and December 31, 1995, the related Statements of Income for
the three month and six month periods ended June 30, 1996 and June 30, 1995, and
the related Statements of Cash Flows for the six month periods ended June 30,
1996 and June 30, 1995, respectively, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. The financial statements have been prepared on the accrual
basis of accounting.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures and the
provision for income taxes as required by generally accepted accounting
principles. If the omitted disclosures and provision for income taxes were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position and results of operations.
Accordingly, these financial statements are not designed for those who are not
informed about such matters.
The Balance Sheet for the year ended December 31, 1995 was audited by another
accountant and he expressed an unqualified opinion on this financial statement
dated March 15, 1996. We have not performed any auditing procedures since that
date.
Dated: July 31, 1996 Murray Peck, P.C.
Certified Public Accountants
BY: /s/Murray Peck
-----------------------------------
Murray Peck, CPA, President
(Page 3 of 9 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
BALANCE SHEETS
June 30, 1996 and December 31, 1995
ASSETS
June 30, 1996 Dec.31, 1995
------------- ------------
Current assets
Cash $ 135,320 $ 23,569
Accounts receivable 115,789 109,116
Loans receivable - Intercompany 89,201 0
Inventory 398,118 296,495
Loans to employees 205 0
----------- -----------
Total current assets 738,633 429,180
Property, plant, and equipment - Mexico 3,044,560 3,044,560
Mex Marmoles Muguiro - Trade Name\Company Files 273,589 273,589
Machinery & equipment 376,131 266,984
Accumulated depreciation (614,304) (518,304)
----------- -----------
Net property and equipment 3,079,976 3,066,829
Other assets
Prepaid rent 1,995 1,995
Prepaid IVA - Mexico 105,152 52,435
Investment - Green Quarry 1,200,000 1,200,000
----------- -----------
Total other assets 1,307,147 1,254,430
----------- -----------
Total assets $ 5,125,756 $ 4,750,439
=========== ===========
(See Accoutant's Report)
(Page 4 of 9 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
BALANCE SHEETS
June 30, 1996 and December 31, 1995
LIABILITIES AND EQUITY
June 30, 1996 Dec. 31, 1995
----------------- ---------------
Liabilities
Current liabilities
Accounts payable $ 163,904 $ 33,094
Accrued pension 4,969 4,969
Payroll taxes 12,707 422
Accrued payroll taxes 24,860 22,627
Accrued interest 16,494 16,230
Other accrued taxes 4,407 0
Shareholder loan 1,828 0
Due to Felipe 2,567 2,567
Loan payable - G&C Partners 30,500 35,000
Due to M. Cunningham 14,949 14,949
Loan payable - truck 6,744 7,610
Loan payable - vehicle 12,336 13,003
Loan payable - forklift 15,162 16,456
Long term debt - Mexico 924,387 817,224
---------------- ---------------
Total current liabilities 1,235,814 984,151
---------------- ---------------
Equity
Common stock 44,226 34,226
Additional paid in capital 7,838,209 7,838,209
Retained earnings (4,106,147) (4,087,912)
Current period earnings (loss) 113,654 (18,235)
---------------- ---------------
Total equity 3,889,942 3,766,288
---------------- ---------------
Total liabilities and equity $ 5,125,756 $ 4,750,439
================ ===============
(See Accoutant's Report)
(Page 5 of 9 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
STATEMENTS OF INCOME
Six months ended June 30, 1996 and 1995
June 30, 1996 June 30, 1995
------------- -------------
Income
Sales $ 899,367 $ 470,710
Cost of sales 420,796 242,728
---------------- ---------------
Gross profit 478,571 227,982
Expenses
Salaries and wages 32,198 52,105
Salaries - officers 63,000 0
Casual labor 3,647 0
Salaries - salesmen 17,750 0
Advertising 4,070 7,047
Promotion 2,017 0
Auto expense 3,693 3,735
Bank charges 1,346 445
Commissions 2,066 0
Consulting fees 7,173 0
Data processing 590 0
Depreciation 96,000 93,264
Dues and subscriptions 4,443 1,157
Insurance 5,513 4,373
Legal and accounting 20,770 7,845
Licenses and permits 420 472
Office expense 40,031 19,238
Postage 1,950 1,631
Rent 18,827 8,314
Supplies 8,516 828
Taxes - payroll 12,129 13,760
Telephone 5,332 5,242
Travel 12,471 10,234
Utilities 1,100 1,090
Other expense (income) (135) (3,390)
---------------- ---------------
Total expenses 364,917 227,390
---------------- ---------------
Net income $ 113,654 $ 592
================ ===============
(See Accoutant's Report)
(Page 6 of 9 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
STATEMENTS of CASH FLOWS
For the six months ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 113,654 $ 592
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 96,000 93,264
(Increase) decrease in:
Loans to employees (205) 0
Accounts receivable (6,673) (33,000)
Inventories (101,623) 52,130
Prepaid expenses - IVA (52,717) (2,497)
Intercompany receivable - Mexic o (89,201) 0
Deposits 0 (1,563)
Investments - Mexico 0 11,985
Increase (decrease) in:
Accounts payable 130,810 87,100
Accrued liabilities 19,189 (71,247)
------------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 109,234 136,764
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (109,147) 0
------------- ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (109,147) 0
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings:
Long-term (net) 107,163 27,351
Short-term (net) (7,327) 15,074
Stockholder loans 1,828 (38,003)
Purchase of common stock 10,000 0
------------- ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 111,664 4,422
------------- ------------
NET INCREASE (DECREASE) IN CASH 111,751 141,186
CASH AT BEGINNING OF YEAR 23,569 29,183
CASH AT JUNE 30 $ 135,320 $ 170,369
============= ============
</TABLE>
(See Accoutant's Report)
(Page 7 of 9 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1) General
-------
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary to fairly present such information. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. It is suggested that
these financial statements be read in conjunction with the consolidated
financial statements, included in the Company's latest annual report on Form
10-K filed for the year ended December 31, 1995.
2) Inventory
---------
Inventory for the company is stated at cost. All of the costs associated
with the production of tile in the Mexican plant have been factored into the
value of the cost of the goods sold and the ending inventory. Cost of goods sold
also included freight from Mexico to the United States. Inventory as of June 30,
1996 was located at the plant in Durango, Mexico and at the showroom-warehouse
in Tempe, Arizona. Interest expense of the Mexican bank loans for the period
ending June 30, 1996 has been capitalized and is found in the ending inventory
and the cost of goods sold.
Item 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations
General
- -------
Sales for the first quarter ended June 30, 1996 have increased 55% over the
same period in 1995. Pretax earnings for the same period increased by 81%.
Pretax earnings for the six months ended June 30, 1996 increased 192 times over
June 30, 1995. This trend is expected to continue as a result of continuing
market penetration and increase in production volume. Pretax earnings for the
six months ended June 30, 1996 were $113,654 after the noncash item of
depreciation, in the amount of $96,000, has been deducted. Without the
depreciation expense, the Registrant had $209,000 in pretax earnings for this
period.
The Company has ordered additional machinery from Italy which will allow it
to produce different finishes and to reduce the inventory of less popular
varieties of stone being produced. New buildings, totaling approximately 7,500
square feet, have been completed for the Phase I plant expansion. New machinery
was ordered during the first quarter 1996 and, as of the date of this writing,
has all been received. This machinery will allow the company to increase
production levels while decreasing the cost of production. Additionally, the
marble tiles produced by the Phase I facility are expected to command a higher
price in all segments of the market, allowing the company to enjoy increased
earnings. Phase I machinery is expected to be installed by late September, and
fully on line during the last quarter of 1996. The Company expects a strong
increase in sales and earnings by year end. Some weeks of production experience
will be required to fully utilize this new equipment and to expose the new
finishes and products to the market. Management expects that December 1996 will
fully reflect the effects of Phase I expansion and fully support the Company's
plans to complete Phase II. Phase II will require about one million dollars to
complete. When complete, Phase I and Phase II are expected to triple the
production capacity and more than triple pretax earnings.
Phase I expansion was reported in the first quarter 10-Q as being projected
to be on-line by July. However, the machinery from Italy did not arrive in June,
as contracted, but did arrive in August.
Results of Operations
- ---------------------
The activities of the Company during the second quarter were focused on
improving both quality and quantity of production at the Mexican facilities,
improving training and work environment for all employees, penetration of the
local Arizona market, and quarry development and improvement.
Production volume continued to rise in the second quarter due to emphasis
on improvement in training of management and employees, better utilization of
space and equipment, continuous improvement in the manufacturing process, as
well as quarry development and exploration. The showroom and warehouse operation
(Page 8 of 9 Pages)
<PAGE>
in Tempe, Arizona, has contributed toward greater penetration of the Arizona
market, which allowed an increase in the margin of profit.
Management continued its commitment in the second quarter to developing
effective ways of fostering continuous improvement of quality. The training
program based on Control Systems Theory was continued. This approach was
developed by Dr. William Glasser and is consistent with the work of W. Edwards
Deming. As adopted by World Wide Stone, Control Theory Management involves
active interest by management in the needs of the workers, a participatory
environment, empowerment for decision-making, and emphasis on personal
responsibility. This approach is thought to be appropriate in multicultural
settings and was instituted both in the U.S. and Mexico.
Liquidity and Capital Resources
- -------------------------------
The Company cash flow is sufficient to maintain operations. Expansion of
operations may be financed by debt or equity investment and in part by retained
earnings. The assets of the Corporation are not liquid and consist of those
items listed herein. During the second quarter of this year, the Company
successfully refinanced its Mexican bank debt, lowering the interest paid to an
effective rate of about 13.5%. The exact amount is difficult to pinpoint because
of ancillary bank charges and fees. (See 1995 10-K.)
Part II - Other Information
Item 1. Legal Proceedings.
The Company has been audited by the I.R.S. for the years 1989, 1990, and
1991. On October 11, 1995 the Company received a Notice of Deficiency in the
amount of $564,130 plus interest and penalties in the amount of $423,098. In
addition, the President of the Registrant has been personally audited for the
same period and has been served with a Notice of Deficiency totaling $937,923
plus penalties of $703,443. The Company has retained a tax attorney who has
advised that the claims are ridiculous and baseless. In the opinion of counsel,
the Company will prevail in tax court. Management further reminds the reader
that the Company reported substantial losses for each of the years in question.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
Signature
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 authorized.
Date: August 13, 1996 World Wide Stone Corporation
(Registrant)
BY: /s/Franklin Cunningham/
---------------------------------------
Franklin Cunningham, President
(Page 9 of 9 Pages)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 135,320
<SECURITIES> 0
<RECEIVABLES> 115,789
<ALLOWANCES> 0
<INVENTORY> 398,118
<CURRENT-ASSETS> 738,633
<PP&E> 3,694,280
<DEPRECIATION> (614,304)
<TOTAL-ASSETS> 5,125,756
<CURRENT-LIABILITIES> 1,235,814
<BONDS> 0
0
0
<COMMON> 44,226
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,125,756
<SALES> 899,367
<TOTAL-REVENUES> 899,367
<CGS> 420,796
<TOTAL-COSTS> 420,796
<OTHER-EXPENSES> 364,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 113,654
<INCOME-TAX> 0
<INCOME-CONTINUING> 113,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,654
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
