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 September 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 September 30, 1996, there were 34,818,868 shares of common
stock outstanding.
Documents Incorporated by Reference
None
(Page 1 of 10 Pages)
<PAGE>
World Wide Stone Corporation and Subsidiaries
Index to Form 10-Q
For the Quarter Ended September 30, 1996
Part I. Financial Information
Item 1. Financial Statements
CPA's Certification............................................... 3
Consolidated Balance Sheet
September 30, 1996 and December 31, 1995.......................... 4
Consolidated Statement of (Operations) Income
Three months ended September 30, 1996 and 1995.................... 6
Consolidated Statement of (Operations) Income
Nine months ended September 30, 1996 and 1995..................... 7
Consolidated Statement of Cash Flows
Nine months ended September 30, 1996 and 1995..................... 8
Notes to Financial Statements..................................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 9
Part II. Other Information
Item 1. Legal Proceedings................................................ 10
Item 5. Other Information................................................ 10
(Page 2 of 10 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 September 30, 1996 and December 31, 1995, the related Statements of Income
for the three month and nine month periods ended September 30, 1996 and
September 30, 1995, and the related Statements of Cash Flows for the nine month
periods ended September 30, 1996 and September 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.
We are not independent with respect to World Wide Stone Corporation.
Dated: October 31, 1996 Murray Peck, P.C.
Certified Public Accountants
BY: /s/Murray Peck
------------------------------
Murray Peck, CPA, President
(Page 3 of 10 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
BALANCE SHEETS
September 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
ASSETS
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
<S> <C> <C>
Current assets
Cash $ 166,958 $ 23,569
Accounts receivable 192,859 109,116
Loans receivable - Intercompany 99,597 0
Inventory 415,566 296,495
Loans to employees 710 0
----------- -----------
Total current assets 875,690 429,180
Property, plant, and equipment - Mexico 3,044,560 3,044,560
Mex Marmoles Muguiro - Trade Name\Company Files 273,589 273,589
Machinery & equipment 515,810 266,984
Accumulated depreciation (672,304) (518,304)
----------- -----------
Net property and equipment 3,161,655 3,066,829
Other assets
Prepaid rent 11,054 1,995
Prepaid IVA - Mexico 151,287 52,435
Investment - Green Quarry 1,200,000 1,200,000
----------- -----------
Total other assets 1,362,341 1,254,430
----------- -----------
Total assets $ 5,399,686 $ 4,750,439
=========== ===========
</TABLE>
(See Accountant's Report)
(Page 4 of 10 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
BALANCE SHEETS
September 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
LIABILITIES AND EQUITY
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
<S> <C> <C>
Liabilities
Current liabilities
Accounts payable $ 216,762 $ 33,094
Accrued pension 4,969 4,969
Payroll taxes 6,008 422
Accrued payroll taxes 15,299 22,627
Accrued interest 16,569 16,230
Other accrued taxes 9,258 0
Due to Felipe 2,567 2,567
Loan payable - G&C Partners 30,500 35,000
Due to M. Cunningham 9,949 14,949
Loan payable - truck 5,011 7,610
Loan payable - vehicle 10,333 13,003
Loan payable - forklifts 36,664 16,456
Long term debt - Mexico 988,387 817,224
----------- -----------
Total current liabilities 1,351,776 984,151
----------- -----------
Equity
Common stock 76,031 34,226
Additional paid in capital 7,848,209 7,838,209
Retained earnings (4,106,147) (4,087,912)
Current period earnings (loss) 229,817 (18,235)
----------- -----------
Total equity 4,047,910 3,766,288
----------- -----------
Total liabilities and equity $ 5,399,686 $ 4,750,439
=========== ===========
</TABLE>
(See Accountant's Report)
(Page 5 of 10 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
STATEMENTS OF INCOME
Three months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Income
Sales $ 600,993 $ 231,015
Cost of sales 267,841 130,737
--------- ---------
Gross profit 333,152 100,278
Expenses
Salaries and wages 20,618 30,703
Salaries - officers 18,000 0
Casual labor 221 0
Salaries - salesmen 13,310 0
Advertising 7,638 8,022
Promotion 19 0
Auto expense 361 2,310
Bank charges 2,032 189
Commissions 9,255 0
Consulting fees 9,514 0
Data processing 0 0
Depreciation 58,000 46,632
Dues and subscriptions 645 103
Insurance 6,389 1,725
Legal and accounting 4,705 4,124
Licenses and permits 1,089 205
Office expense 21,264 11,094
Postage 1,255 1,462
Rent 8,610 4,679
Supplies 10,739 10,139
Taxes - payroll 5,266 3,109
Telephone 4,589 2,808
Travel 12,769 7,249
Utilities 693 590
Other expense 8 0
--------- ---------
Total expenses 216,989 135,143
--------- ---------
Net income (loss) $ 116,163 $ (34,865)
========= =========
</TABLE>
(See Accountant's Report)
(Page 6 of 10 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
STATEMENTS OF INCOME
Nine months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Income Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Sales $ 1,500,360 $ 687,784
Cost of sales 688,637 373,465
----------- -----------
Gross Profit 811,723 314,319
----------- -----------
Expenses
Salaries and wages 52,816 82,808
Salaries - officers 81,000 0
Casual labor 3,868 0
Salaries - salesmen 31,060 0
Advertising 11,708 15,069
Promotion 2,036 0
Auto Expense 4,054 6,045
Bank Charges 3,378 634
Commissions 11,321 0
Consulting Fees 16,687 0
Data Processing 590 0
Depreciation 154,000 139,896
Dues and subscriptions 5,088 1,260
Insurance 11,902 6,098
Legal and accounting 25,475 11,969
Licenses and permits 1,509 677
Office expense 61,295 26,024
Postage 3,205 3,093
Rent 27,437 12,993
Supplies 19,255 11,102
Taxes - payroll 17,395 17,652
Telephone 9,921 8,050
Travel 25,240 17,483
Utilities 1,793 1,680
Other expense (income) (127) (13,941)
----------- -----------
Total expenses 581,906 348,592
----------- -----------
Net income (loss) $ 229,817 ($ 34,273)
=========== ===========
</TABLE>
See accountant's report.
(Page 7 of 10 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
STATEMENTS of CASH FLOWS
For the nine months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 229,817 $ (34,273)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 154,000 139,896
(Increase) decrease in:
Loans to employees (710) (26,343)
Accounts receivable (83,743) (38,643)
Inventories (119,071) 7,493
Prepaid expenses - IVA (98,852) (184,579)
Intercompany receivable - Mexico (99,597) 0
Deposits (9,059) (1,563)
Increase (decrease) in:
Accounts payable 183,668 (36,567)
Accrued liabilities 7,855 39,021
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 164,308 135,558
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (248,826) 0
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (248,826) 0
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings:
Long-term (net) 171,163 273,805
Short-term (net) 4,939 11,810
Stockholder loans 0 (25,782)
Purchase (sale) of common stock 41,805 (2,500)
Additional paid in capital 10,000 0
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 227,907 257,333
--------- ---------
NET INCREASE (DECREASE) IN CASH 143,389 121,775
CASH AT BEGINNING OF YEAR 23,569 29,183
CASH AT SEPT. 30 $ 166,958 $ 150,958
========= =========
</TABLE>
(See Accountant's Report)
(Page 8 of 10 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 September 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 September 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 third quarter ended September 30, 1996 have increased
61% over the same period in 1995. Pre-tax earnings for the same period increased
by 77%. Pre-tax earnings for the nine months ended September 30, 1996 increased
87% over the same period in 1995. This trend is expected to continue as a result
of continuing market penetration and increases in production volume. Pre-tax
earnings for the nine months ended September 30, 1996 were $229,817 after the
noncash item of depreciation, in the amount of $154,000, has been deducted.
Without the depreciation expense, the Registrant had $383,817 in pre-tax
earnings for this period.
On October 17, 1996, the Company's new factory, Phase I, went on line.
75% of Phase I is complete with one important machine still on order from Italy.
This machine was ordered during the Verona Fair in Italy during October and is a
late expansion of Phase I. This was due to having sufficient cash flow to make
this investment and will further increase the production of Phase I. This
machine should be on line by February 1997. Phase one is nonetheless operational
and is projected to add substantially to the Company's sales and pre-tax
profits. As of the date of this writing, total production has increased 37%. The
first truck shipped from the new plant was received in the Company's Tempe,
Arizona facility on October 6. The process of marketing this beautiful new
product is now in full implementation. Early response is very strong and the
total production of Phase I is expected to be committed to the large customers
of the Company by year end. The first building of Phase II of the Company's
second factory broke ground in late September and the shell is expected to be
complete in November. This structure is about 5000 square feet.
Results of Operations The activities of the Company during the third 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 and national markets, quarry development and
improvement, and coordination of all the contractors necessary to bring the new
plant on line.
Production volume continued to rise in the third 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 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 third 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
(Page 9 of 10 Pages)
<PAGE>
responsibility. This approach is thought to be appropriate in multi-cultural
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.) With
the exception of interest carrying charges, all of Phase I was paid for with
earnings.
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. On or about 26 August 1996, a Form S-8 was filed
by the Company with the Securities and Exchange Commission. A "Consulting
Agreement" entered by the Company with La Costa Financial Corporation
("Consultant"), said agreement dated 12 August 1996, was a part of the Form S-8.
The Form S-8 provided for issuance by Company to Consultant of
non-transferrable Warrants for the Company's common stock, exercisable on a one
Warrant for one share basis. Total Warrants authorized provided for up to
5,000,000 shares, exercisable in total or in part of 5 separate increments of
1,000,000 share each. Only the first increment of 1,000,000 shares was exercised
by Consultant. From that first increment, 597,100 shares have been or are in the
process (we are advised by a third-party fiduciary) of being returned to the
Company. Additional shares and/or funds are expected to be returned and/or paid
to the Company by Consultant in the near future.
The Company has been advised that the President of Consultant is,
personally, the subject of a pending joint investigation of the Securities and
Exchange Commission and the Federal Bureau of Investigations. The Company is not
a subject of that investigation, nor has it been contacted by either agency.
Under terms and conditions of the said agreement, therefore, Consultant breached
on or about 11 October 1996. The Company suspended all rights of Consultant
created under both the Consulting Agreement and the Form S-8.
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: November 12, 1996 World Wide Stone Corporation
(Registrant)
BY: /s/Franklin Cunningham/
---------------------------------
Franklin Cunningham, President
(Page 10 of 10 Pages)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 166,958
<SECURITIES> 0
<RECEIVABLES> 192,859
<ALLOWANCES> 0
<INVENTORY> 415,566
<CURRENT-ASSETS> 875,690
<PP&E> 3,833,959
<DEPRECIATION> 672,304
<TOTAL-ASSETS> 5,399,686
<CURRENT-LIABILITIES> 1,351,776
<BONDS> 0
0
0
<COMMON> 76,031
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,399,686
<SALES> 1,500,360
<TOTAL-REVENUES> 1,500,360
<CGS> 688,637
<TOTAL-COSTS> 688,637
<OTHER-EXPENSES> 581,906
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 229,817
<INCOME-TAX> 0
<INCOME-CONTINUING> 229,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,817
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
