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 March 31, 1997 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 March 31, 1997, there were 35,222,618 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 March 31, 1996
Part I. Financial Information
Item 1. Financial Statements
CPA's Certification............................................. 3
Consolidated Balance Sheet
March 31, 1997 and December 31, 1996............................ 4
Consolidated Statement of Operations (Income)
Three months ended March 31, 1997 and 1996...................... 6
Consolidated Statement of Cash Flows
Three months ended March 31, 1997 and 1996...................... 7
Notes to Financial Statements................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation................... 8
Part II. Other Information
Item 1. Legal Proceedings............................................... 9
(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 March 31, 1997 and December 31, 1996, and the related Statements of Income
for the three month periods ended March 31, 1997 and March 31, 1996, and the
related Statements of Cash Flows for the three month periods ended March 31,
1997 and 1996, 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, 1996 was audited by another
accountant and he expressed an unqualified opinion on this financial statement
dated March 15, 1997. We have not performed any auditing procedures since that
date.
Date: May 7, 1997 Murray Peck, P.C.
Certified Public Accountants
BY: /s/Murray Peck/
---------------------
Murray Peck, CPA, President
See accountants' report.
(Page 3 of 10 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
BALANCE SHEETS
March 31, 1997 and December 31, 1996
ASSETS
March 31, 1997 Dec. 31, 1996
-------------- -------------
Current assets
Cash $ 138,973 $ 43,756
Accounts receivable 96,900 27,561
Inventory 551,242 590,335
Rental Deposits 2,895 2,895
Deposits on Equipment 65,680 65,680
----------- -----------
Total current assets 855,690 730,227
Property and equipment
Mexican land and building 3,044,560 3,044,560
Mex Marmoles Muguiro 273,589 273,589
Machinery & equipment 572,049 557,181
Accumulated depreciation (798,032) (742,068)
----------- -----------
Net property and equipment 3,092,166 3,133,244
Other assets
Prepaid expenses 7,020 8,136
Prepaid IVA - Mexico 131,187 108,981
Investment - Green Quarry 1,200,000 1,200,000
----------- -----------
Total other assets 1,338,207 1,317,117
----------- -----------
Total assets $ 5,286,063 $ 5,180,588
=========== ===========
See accountants' report.
(Page 4 of 10 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
BALANCE SHEETS
March 31, 1997 and December 31, 1996
LIABILITIES AND EQUITY
March 31, 1997 Dec. 31, 1996
-------------- -------------
Liabilities
Current liabilities
Accounts payable $ 68,618 $ 98,661
Accrued pensions, taxes and fees payable 8,815 10,386
Sales deposits 18,561 14,835
Current portion long-term debt 76,954 89,932
Loans payable - short term 49,187 43,449
----------- -----------
Total current liabilities 222,135 257,263
Long-term debt
Loans payable - vehicles and equipment 40,271 35,953
Long term debt - Mexico 831,629 805,166
----------- -----------
Total liabilities 1,094,035 1,098,382
----------- -----------
Equity
Common stock 35,223 35,223
Additional paid in capital 7,889,017 7,889,017
Retained earnings (3,842,034) (4,106,147)
Current period earnings (loss) 109,822 264,113
----------- -----------
Total equity 4,192,028 4,082,206
----------- -----------
Total liabilities and equity $ 5,286,063 $ 5,180,588
=========== ===========
See accountants' report.
(Page 5 of 10 Pages)
<PAGE>
WORLD WIDE STONE CORPORATION
STATEMENTS OF INCOME
Three months ended March 31, 1997 and 1996
March 31, 1997 March 31, 1996
Income
Sales $ 650,834 $ 450,509
Cost of sales 269,198 225,618
----------- ----------
Gross profit 381,636 224,891
Expenses
Salaries and wages 26,965 15,950
Salaries - officers 27,000 27,000
Casual labor 0 3,622
Salaries - salesmen 13,650 7,150
Advertising 23,175 2,607
Promotion 0 650
Auto expense 1,399 898
Bank charges 934 644
Commissions 2,099 1,216
Consulting fees 8,800 1,606
Data processing 0 593
Depreciation 55,946 48,000
Dues and subscriptions 1,138 2,094
Insurance 2,885 2,133
Legal and accounting 43,315 17,774
Licenses and permits 217 420
Office expense 4,308 14,264
Postage 1,848 715
Rent 10,198 8,717
Supplies 3,193 5,215
Taxes - payroll 7,127 5,521
Telephone 4,529 3,479
Travel 6,075 3,337
Utilities 550 703
Interest expense 26,463 87
----------- ----------
Total expenses 271,814 174,395
----------- ----------
Net income (loss) $ 109,822 $ 50,496
=========== ==========
See accountants' report.
(Page 6 of 10 Pages)
<PAGE>
World Wide Stone Corporation
Statements of Cash Flows
For the three months ended March 31, 1997 and 1996
March 31 1997 March 31, 1996
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 109,822 $ 50,496
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 55,946 48,000
(Increase) decrease in:
Loans to employees 0 (205)
Accounts receivable (69,339) (74,642)
Inventories 39,093 (13,242)
Prepaid expenses - IVA (22,206) (9,024)
Accounts receivable - Mexico 0 (28,128)
Prepaid Expenses - other 1,116 0
Increase (decrease) in:
Accounts payable (26,317) 10,470
Accrued liabilities (1,571) 24,711
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 86,544 8,436
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (14,868) (2,061)
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (14,868) (2,061)
CASH FLOWS FROM FINANCING ACTIVITIES
New borrowings:
Long-term (net) 30.781 43,276
Short-term (net) (7,240) (4,827)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 23,541 38,449
--------- ---------
NET INCREASE (DECREASE) IN CASH 95,217 44,824
CASH AT BEGINNING OF YEAR 43,756 23,569
CASH AT MARCH 31 $ 138,973 $ 68,393
========= =========
See accountants' report.
(Page 7 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 and the notes thereto as well as Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
included in the Company's latest annual report an Form 10-K filed for the year
ended December 31, 1996.
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 March 31, 1997 was located at the plant in Durango, Mexico and at the
showroom-warehouses in Tempe, Arizona, Anaheim, California and El Paso, Texas.
Interest expense of the Mexican bank loans for March 31, 1997 has been added to
the line of credit.
Item 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations
General
- -------
Sales for the first quarter ending March 31, 1997 have increased 30%
over the same period in 1996. Pre- tax earnings for the same period increased by
54%. This trend is expected to continue as a result of continuing market
penetration and increases in production volume. Two trade shows were presented
in the first quarter, one in Phoenix, Arizona and one in Las Vegas, Nevada.
Market response on all the company's products has continued to improve. The need
for additional production volume is acute and future growth is limited without
production increases.
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. This
machine will ship from Italy On May 17, 1997, and should be installed and on
line the end of July. This addition will increase production about 30% with
minor overhead increases. Phase I of the new tumbled plant has added about 40%
to the production levels. Management is continuing to learn how to get more
production from this plant and substantial increases are projected. Between the
original factory and the new Phase I factory, an increase of more than 70% in
production is expected this year. With the delivery of the machine, a block
cutter, Phase I will be complete. Investment was possible due to having
sufficient cash flow to make this purchase, and the block cutter will further
increase the production of Phase I. Phase I is operational and has added
substantially to the Company's sales and pre-tax profits. The first truck
shipped from the new plant was received in the Company's Tempe, Arizona facility
on October 6, 1996. 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 committed to large customers of the Company. The first building of
Phase II of the company's second factory broke ground in September, 1996 and has
been completed. This structure is about 4,000 square feet. For continued
production expansion, more machinery is needed and will be added as capital is
available.
Results of Operations
- ---------------------
The activities of the Company during the first 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, quarry development and improvement, and coordination of
all the contractors necessary to bring the new plant to installed capacity.
Production volume continued to rise in the first quarter due to
emphasis on improvement in training of
(Page 8 of 10 Pages)
<PAGE>
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 first 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 by Lee M. Cunningham.
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 Company are not liquid and consist of these
items listed herein. During the second quarter of 1996, the Company successfully
refinanced its Mexican bank debt, lowering the interest rate paid to an
effective rate of about 12%. 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 and its president have 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. Both cases were referred to tax
court and were hear in February and March of 1997. The Decision for the
Registrant, entered March 13 1997, Docket No. 103-96 reads as follows: Pursuant
to the agreement of the parties in the above-entitled case, it is ORDERED AND
DECIDED: That there are no deficiencies in income tax due from, nor overpayments
due to, the petitioner for the taxable years 1989, 1990, and 1991; and That
there are no additions to tax due from the petitioner for the taxable years
1989, 1990, and 1991, under the provisions of IRC 6663.
The decision for the Registrant's President and wife, Docket 104-96
reads as follows: Pursuant to the agreement of the parties in the above-entitled
case, it is ORDERED AND DECIDED: That there are deficiencies in income tax due
from the Petitioners for the taxable years 1989 and 1990 in the amounts of
$4,975.00 and $9,770.00, respectively, that there is no deficiency in income tax
due from, no overpayment due to, the petitioners for the taxable year 1991; and
That there are no additions to tax due from the petitioners for the taxable
years 1989, 1990, and 1991, under the provision of I.R.C. 6663.
The Registrant filed a lawsuit against Mario Ruiz and Progressive
Transfer Company on February 7, 1997. A Notice of Entry of Order Granting
Preliminary Injunction was granted March 10, 1997. This case is being heard by
the District Court, Clark County, Nevada, Case No. A369361 Dept. No. XVI Docket
No. "V". The purpose is to recover the certificates for common stock of the
Registrant, the certificates which Ruiz failed to return September 29, 1990. The
transfer agent is also a party, as a formality, to prevent the inappropriate
transfer of the certificates representing said common stock of the Registrant on
its books.
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
Under the terms of a Consulting Agreement ("Agreement") effective
August 12, 1996, between the Registrant and La Costa Financial Corporation ("La
Costa"), the Registrant hired La Costa as an independent
(Page 9 of 10 Pages)
<PAGE>
consultant to provide financial and public relations services for the
Registrant. The Registrant was established as the sole judge of whether or not
the performance by Consultant of its duties and services were satisfactory. La
Costa's total and complete compensation for satisfactory performance of its
duties and services was to be Common Stock Purchase Warrants ("Warrants") issued
by the Registrant for a total of up to Five Million (5,000,000) shares of the
Registrant's common stock, which Warrants could be earned by La Costa in
performance increments.
All shares of common stock of the Registrant underlying the Warrants
were registered for free-trading under the Securities Act of 1993, as amended,
via a form S-8 Registration Statement ("Registration" filed with the Securities
and Exchange Commission ("SEC") on August 29, 1996. Under the Agreement and
Registration, the first increment of Warrants for One Million (1,000,000) shares
was issued to La Costa immediately upon the filing of the Registration. La Costa
immediately exercised Warrants for 1,000,000 shares and ensued to perform its
duties and responsibilities. (Copy of Form S-8 Registration, "Consulting
Agreement between World Wide Stone Corporation and La Costa Financial
Corporation", including a copy of the Agreement, may be obtained from the SEC or
viewed on-line via the Registrant's EDGAR filing.)
On October 10, 1996, Management received an article via fax from the
Registrant's CPA, which had been down-loaded from an internet news service,
alleging that a principal of La Costa had been charged with an alleged criminal
wrong-doing related to the promotion of the Registrant. Upon further inquiry and
verification by Management that La Costa's principal was, in fact, advised that
he was subject to investigation by the SEC in the matter. The Registrant advised
La Costa and La Costa agreed that, whether or not its principal became formally
charged with any alleged wrong-doing in this matter, La Costa had been rendered
ineffective and ineffectual with respect to the terms and purposes of the
Agreement. Therefore, on Saturday, October 12, 1996, under the terms and
conditions thereof, the Registrant suspended the Agreement and instructed La
Costa to make immediate and complete accounting to the Registrant of all
transactions associated with the Registrant's stock, pay all funds due to the
Registrant, and return to Registrant all warrants and shares remaining directly
and indirectly in its possession.
NOTE: While the SEC has requested from the Company, and the Company has
supplied file information to the SEC respecting its investigation
of the Agreement and La Costa's principal, neither the Company
nor any director, officer, or employee of the Company is the
subject of any investigation in regard to this matter. Further,
the Company has no involvement in this matter.
As of March 25, 1997, the Company has not yet received a full
accounting from La Costa, and legal counsel for La Costa has advised the Company
that a full account shall be forthcoming in due course, subject to defense
issues respecting the charges against his client. However, the Company has
received a partial accounting, the return of some 697,100 shares of common
stock, and payments for Warrants in total amounts of $41,850, which are
reflected in the financial reports contained herein.
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: May 15, 1997 World Wide Stone Corporation
(Registrant)
BY: /s/Franklin Cunningham/
------------------------------------
Franklin Cunningham, President
(Page 10 of 10 Pages)
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<ARTICLE> 5
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 138,973
<SECURITIES> 0
<RECEIVABLES> 96,900
<ALLOWANCES> 0
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<PP&E> 3,890,198
<DEPRECIATION> 798,032
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<CURRENT-LIABILITIES> 68,618
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0
0
<COMMON> 35,222,618
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<TOTAL-REVENUES> 650,834
<CGS> 269,198
<TOTAL-COSTS> 269,198
<OTHER-EXPENSES> 271,814
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