UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File No. 000-18389
(Filing Dated: March 27, 1996)
WORLD WIDE STONE CORPORATION
(Exact Name of Registrant as specified in its Charter)
NEVADA 33-0297934
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2150 W. University Dr., Tempe, Arizona 85281
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 966-0047
Securities registered pursuant to Section 12(g) of the Act:
$.001 Par Value Common;
$.001 Par Value Preferred.
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. YES X NO
--- ---
The aggregate market value of Common Stock (voting stock) of Registrant
held by non-affiliates at December 31, 1996, based upon the low equity sale
price of 6(cent) per share, was approximately $2,113,357 within 60 days of
December 31, 1996.
The number of shares outstanding of the Registrant's Common Stock as of
December 31, 1996, was 35,222,618.
Documents incorporated by reference: NONE.
PART I
Item 1. Business. WORLD WIDE STONE CORPORATION
The Registrant was incorporated under the laws of the State of Delaware
on June 12, 1988, under the name Tacitus Ventures, Inc. as a blind pool - blank
check company for the purpose of acquiring or merging with one or a limited
number of private companies, sole proprietorships or partnerships. On November
15, 1989, the Registrant filed its Certificate of Amendment of Certificate of
Incorporation with the Delaware Secretary of State. Said Amendment allowed for a
name change of Registrant to World Wide Stone Corporation, a Delaware
corporation,
<PAGE>
and allowed for an increase in the authorized shares as approved by the
shareholders. On November 15, 1989, the Registrant filed a Certificate and
Agreement of Merger with the Delaware Secretary of State; wherein, the
Registrant agreed to a merger with World Wide Stone Corporation, a private
Nevada corporation, with the Registrant to be the surviving entity and the
private World Wide Stone Corporation, a Nevada corporation, being dissolved. The
closing of the Certificate and Agreement of Merger occurred on November 30,
1989; whereby, the Registrant exchanged 15,000,000 common shares and 5,000,000
convertible preferred shares of the Registrant's unissued authorized treasury
stock for 15,000,000 common share and 5,000,000 convertible preferred shares of
World Wide Stone Corporation, a Nevada corporation, outstanding stock, on a
share-for-share basis. On November 30, 1989, the Registrant filed its Articles
of Incorporation as a domestic corporation with the Nevada Secretary of State,
and filed its Certificate of Dissolution with the Delaware Secretary of State.
Registrant is now domiciled in the State of Nevada, with its corporate offices
located in the City of Tempe, State of Arizona, where it is registered as a
Foreign Corporation.
On March 18, 1991, the Company acquired an operating dimensional stone
factory located in the City of Durango, State of Durango, Country of Mexico.
This acquisitions assets and operations are in two wholly-owned subsidiaries of
the Registrant: (1) a Mexican corporation, called Sociedad Piedra Sierra, S.A.
de C.V., and (2) a Nevada corporation, called Cantera Stone, Inc. A third
wholly-owned Mexican corporation called Marmoles Muguiro, S.A. de C.V., operates
the plant. All employees are employed by this corporation, which owns no assets.
The plant and quarry were fully operational in 1995. Production volumes have
increased each quarter during 1995 and the Company earned a profit from
operations. 1996 was a year of marked, substantial growth. Revenue increased a
remarkable 43%, while after tax earnings increased exponentially to $264,113.
Sales growth, net profits and new plant, which doubled the production capacity,
are the building blocks for greater achievement in 1997. Experience with the
quarry, plant, and employees has allowed significant improvement in every aspect
of the company. Of particular interest is the management system based on Control
Systems Theory that was introduced in early 1995 and has continued to date. (See
Management Discussion and Analysis , page 4.)
Mr. Mario Ruiz ("Ruiz"), one of the original incorporators of World
Wide Stone Corporation, the private Nevada company which merged with World Wide
Stone Corporation (formerly Tacitus Ventures, Inc.) failed to contribute any of
the agreed assets required in consideration for shares in the company. These
assets were the sole basis for this stock to be issued to Ruiz. Said stock
represents a total of 4,310,000 common shares and 1,666,667 convertible
preferred shares. After repeated attempts by Registrant to compel Ruiz to
contribute said assets in payment to Registrant as agreed, and upon repeated
refusal of Ruiz to comply, said stock was cancelled on the records of the
transfer agent of the Registrant on September 29, 1990, and returned to
authorized but not issued common stock of the Registrant. However, Ruiz has
failed to return to the company the certificates for said stock.
See legal proceedings, Item 3.
The Company's activities do not pollute nor threaten to pollute air or
water in any significant manner. Accordingly, federal, state and local laws and
regulations governing the discharge of materials into the environment have
little direct impact upon either the Company or its subsidiaries.
Item 2. Properties. The Company occupies 3,000 square feet showroom and
warehouse space for its corporate offices at 2150 W. University Drive, Tempe,
Arizona 85281. Tenant improvement began in October 1994 and the company occupied
the space in December. In February of 1997 a new showroom and warehouse of 1,000
square feet was opened in Anaheim, California.
On March 18, 1991, the Company acquired four acres of land in Durango,
Durango, Mexico; the land consists of about four acres of prime real estate in
the city of Durango including a 20,000 square foot factory and warehouse,
housing the Company's dimensional stone factory. The Company also had leasehold
rights on four cantera stone quarries in the area of the factory, which have
been dropped. The Company's lease on the primary quarry operation where
marble-limestone and travertine are extracted was discovered by management
through extensive prospecting efforts and a land lease was negotiated with the
land owner with only a small earnest deposit,
<PAGE>
under very favorable terms and conditions for the company. On December 3, 1995,
the Company purchased the rights to mine a very large deposit of homogenous
green quartzite in the State of Chihuahua, Mexico. This deposit contains more
than 400 million cubic meters of stone above grade. Various shades of green are
present with different types of white veining from occasional streaks of white
and green to spider web white. ASTM testing is not yet conclusive although this
material, named Verde Imperial, is expected to test out as commercially durable
for floors and exterior cladding, which would positively impact its value per
cubic meter. This material was displayed in Milan, Italy at an international
buying fair in February 1996 and again in November 1996 in Verona, Italy, with
very encouraging response. (See Management Discussion and Analysis for market
details, page 4). This quarry lease was purchased from a group of Mexican
nationals, one of which is the manager of the Durango factory. The purchase
price was $1,200,000 paid with 2.000,000 shares of R-144 common stock or sixty
cents per share. (See notes 6 and 7 of the Financials, pages F-9 and F-10) These
quarries have significant value; however, the financials do not reflect this
value due to the rules regarding booking assets. The rule states that the
registrant may book an asset at purchase price or market value, whichever is
lower.
The foregoing properties are free of liens and encumbrances at this
time; except as reported above, the factory property has non-property related
debts, and a line of credit in the amount of $882,120 which is secured by the
land, building and equipment of the factory.
Item 3. 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. The President also received, the same day,
a Notice of Deficiency for the same period, in the amount of $937,923 plus
interest and penalties in the amount of $703,443. Both cases were referred to
tax court and were heard 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 I.R.C. 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, nor 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 provisions 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.
(See item 1, Business.) 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 4. Submission Matters to a Vote of Security Holders. NONE
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) 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 consultant to provide
financial and public relations services for the Registrant. The Registrant was
established as
<PAGE>
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 1933, 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 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 obtain 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 the 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 the 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's 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 503,250 shares of common
stock, and payments for Warrants in the total amounts of $41,850, which are
reflected in the financial reports contained herein.
(b) The common stock of the Registrant is thinly traded
Over-The-Counter and is quoted in the National Quotation Bureau's "Bulletin
Board". However, the existence of a limited and sporadic market in the
Registrant's common stock should not be deemed to constitute an established
public trading market. There is no established public market for the
Registrant's common shares except for the stock being listed on a daily basis in
the above "Bulletin Board". The table below shows the range of high and low bid
quotations for the Registrant as reported by Escalator Securities, Inc. for
1990, 1991, 1992, 1993, 1994, 1995, and the High/Low "Bid" for the 1st and 2nd
Quarters, 1996, and High/Low equity "Sale" price as reported by EquiTrade
Securities Corporation for 3rd and 4th Quarters, 1996. Further, respecting the
1st and 2nd Quarters, 1996, figures, Escalator advises that, "Since we were not
the only market maker during that period, we cannot guarantee that the above
numbers include all trades. As you know, there was very little volume in the
first 6 months of (1996)". These quotations represent prices between dealers and
do not include retail markup, markdown or commission. They do not represent
actual transactions and have not been adjusted for stock dividends or splits, of
which there have been none.
During 1990, the Company successfully completed registration under Form
8-A to become a 12(g) fully
<PAGE>
reporting company. All quotes are in dollars.
<TABLE>
<CAPTION>
Quarter High Low
------- ---- ---
<S> <C> <C>
First, 1990 3 .35
Second, 1990 2-1/8 1
Third, 1990 2 1
Fourth, 1990 3.00 3.00
First, 1991 2 1-1/2
Second,1991 2-1/8 1
Third, 1991 2 1
Fourth,1991 1-1/2 1/8
First, 1992 1/10 1/10
Second,1992 1/10 1/10
Third, 1992 1/10 1/10
Fourth,1992 1/10 1/10
First,1993 1/10 1/10
Second,1993 1/10 1/10
Third,1993 1/10 1/10
Fourth,1993 1/10 1/10
First,1994 1 1
Second,1994 1 1
Third,1994 1 1
Fourth,1994 1 1
First,1995 1 1
Second, 1995 1 1
Third, 1995 1 1
Fourth, 1995 1 1
First,1996 1/2 1/4
Second, 1996 1/4 1/4
Third, 1996 .88 .50
Fourth, 1996 .63 .03
</TABLE>
(b) On December 31, 1996, the average reported closing bid
quotation for the Registrant's common stock was "$.03". The approximate number
of holders of the Corporation's common Stock as of December 31, 1996, was 487 of
record according to the Registrant's transfer agent. No dividends have been paid
or declared by the Registrant. There are no restrictions on the Registrant's
present or future ability to pay dividends, except for the financial condition
and performance of the Registrant. Future dividend policy is subject to the
discretion of the Board of Directors and will depend upon a number of factors
including earnings, capital requirements and the financial condition of the
Registrant.
<PAGE>
Item 6. Selected Financial Data.
The following selected financial data (AUDITED) has been derived
from the registrant's financial statements, which have been examined by Mark
Shelley, Independent Certified Public Accountant, for all periods included
herein and should be read in conjunction with the financial statement and note
thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
(See Page 6)
For the Years Ended December 31 1996 1995 1994 1993 1992
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Revenues: $ 1,928,733 $ 1,092,479 $ 642,877 $ 155,022 $ 49,861
Costs and Expenses: $ 1,664,620 $ 1,110,664 ($891,565) ($216,372) ($ 275,801)
Net Profit or Loss $ 264,113 ($ 18,185) ($ 264,400) ($ 314,986) ($ 225,940)
Net Profit or Loss per Share: $ .01 ($ .00005) ($ .0088) ($0.01) ($0.01)
Total shares outstanding: 35,222,618 34,225,868 30,599,164 29,773,249 33,382,886
Balance Sheet Data:
Total Assets: $ 5,180,588 $ 4,750,440 $3598,003 $ 3,326,935 $ 3,303,583
Total Liabilities: $ 1,098,382 $ 984,152 $ 1,030,980 $ 324,151 $ 266,859
Total Stockholder's Equity: $ 4,082,206 $ 3,766,288 $ 2,567,023 $ 3,002,784 $ 3,036,724
Cash Dividends per Common Share: $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
A profit of $469,656 was earned from operations if you add back depreciation of
(1996 $205,543).
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
In 1993, a commitment for debt financing was obtained from Banca Serfin
S.A. The first funding was received in July 1993. These funds were used to begin
rebuilding the machinery to produce limestone,travertine and marble, as well as
prospecting for new quarry deposits. The Company was very fortunate to
successfully acquire a lease in 1993 on the current source of marble block as a
direct result of those efforts. Additionally, new equipment was ordered from
Italy to increase production to profitable levels. Said machinery was received
in August of 1994 and installed and on line in September 1994. With this new
equipment the production volume approximately tripled without an appreciable
increase in costs, with the notable exception of interest carry on the debt. As
a result, the cost to produce a square foot of tile or slab is significantly
reduced which will allow the Company to earn profits. Although 1994 finished
with losses of about $264,000 this is substantially improved over prior years.
1995 was a year of growth and stabilization. The showroom and warehouse
operation in Tempe, Arizona has made a respectable market penetration in
Arizona, which has allowed the Company to increase its margin of profit. 1996
was a year of marked, substantial growth. Revenue increased a remarkable 43%,
while after tax earnings increased exponentially to $264,113. Sales growth, net
profits and new plant, which doubled the production capacity, are the building
blocks for greater achievement in 1997. The Company's new plant, producing the
"Truly Tumbled" Durango Stone products, shipped its first truck in November
1996. This plant has an installed capacity equal to the original plant. This has
doubled the Company's production potential. The costly task of marketing this
new production is in full implementation and, as of the date of this document,
is selling very well. During the second quarter of 1997 the Registrant expects
to be operating this new plant at capacity. This production will be extremely
profitable due to economies of scale and further utilization of existing
machinery. 1997 is expected to post record sales, and net profits followed by
additional equipment purchases. The Company's new warehouse in Anaheim,
California is expected to further increase the Company's market share and
profitability as well.
Approximately 10,000 square feet of new buildings were constructed to
house the new plant. Water treatment facilities were doubled, new administration
offices were constructed as well as a new employee dining room and bathrooms.
Additionally, the quarry production was doubled. All work was completed out of
cash flow. No new bank loans were taken. New and used machinery was reworked and
installed by existing employees, and the entire project was completed with a
remarkably small investment. This was also due in part by further utilizing
<PAGE>
the capacity of some of the machinery in the original plant. 1997 will be a year
of continued growth in production capacity, sales and profitability. All of the
approximately 100 employees of the Registrant are to be congratulated and
thanked for this remarkable growth without significant capital increases.
In order to foster continuous quality improvement both at the factory
and the U.S. offices, a program based on Control Systems Theory was begun.
Control Theory is a biological theory of human behavior taught primarily by Dr.
William Glasser, author of the book The Control Theory Manager. Dr. Glasser's
work is strongly influenced by W. Edwards Deeming. It is believed that Control
Theory forms the basis for an appropriate multi-cultural approach to a
multinational company. This theory maintains that all people are internally
motivated and will not produce quality unless their needs for belonging,
accomplishment, freedom, and fun are met. What people choose in order to meet
these needs will vary from person to person and culture to culture. Control
Theory management as adopted by the Company involves active interest by
management in the needs of the workers; a non-threatening, participatory
environment; more effective training; more empowerment for decision-making; and
more emphasis on personal responsibility. Cooperation rather than coercion is
stressed. Final inspections were de-emphasized in favor of training workers to
inspect their own work. A quality environment in the factory was emphasized,
since it is considered essential for quality production.
The application of Control Theory has proven to be beneficial in
increasing the satisfaction and cooperation of employees and the quality of the
finished product. A commitment has been made to continuing education and
application of these principles in the company.
Comparison of Years 1994, 1995, 1996:
Revenues for the Company for the years ended December 31, 1994, 1995,
and 1996 were $642,877, $1,092,479, and $1,928,733 respectively. During 1993
bank financing was realized and the operation and Company direction that exists
today was born. Machinery was refurbished and additional machinery was ordered
from Italy. Quarry acquisition and development took place (see 1994 10-K) and
production at low levels began.
In 1994 the existing machinery had been refurbished and new machinery
began to arrive. In September 1994 the most significant equipment purchases were
installed and on-line. Quarry development continued throughout the year.
1995 was a year of marked progress in three major areas of operation.
First, quarry development, a large cost of operations item, continued. In the
fourth quarter the Company successfully changed its quarry method from drilling
and light explosives to diamond wire extraction. This involves a significant
decrease in quarry waste and an increase in production volume and quality. With
the installation of new equipment, additional production volume has been
realized, and with increasing experience, the production volume is growing
monthly. Third is market penetration and satisfaction. The Company is gaining
customer base monthly and is earning a reputation as a reliable source of
quality products.
1996 was a year of significant progress. When 1996 began, management
was determined to build expanded production facilities. External financing of
this expansion was unavailable at this stage of development; so management opted
to use cash flow and old fashioned sweat equity to accomplish this task. This
new production capacity will significantly impact the Company's results of
operations in 1997 and the years that follow.
Total assets for the Corporation for the years ended December 31, 1994,
1995, and 1996 were $3,598,003, $4,750,440, and $5,180,588 respectively. Changes
in total assets in 1994 were primarily due to the purchase of equipment. In 1995
the change is primarily due to the December 3 acquisition of the Verde Imperiale
quarry lease. This quartzite deposit is expected to be an integral part of the
future growth and profitability of the Company. Significant investment will be
necessary to realize this potential. Quarry development will be accomplished in
stages as capital is available; full development is projected to require less
than $800,000. Then, production of dimensional stone may also be achieved in
stages as capital permits. Here, full development has no limits, although the
Company plans to build a new production facility for approximately seven million
dollars; management is examining the possibilities available to raise this
capital. No reliance should be placed on these new production goals as the
funding source is not currently known. 1996 change in total assets was due to
new equipment and buildings associated with the new plant, all booked at cost,
and capitalized.
<PAGE>
Liquidity and Capital Resources:
The Corporation's assets are not liquid and consist of those items
listed herein. In 1995, the Company successfully refinanced a portion of its
Mexican bank debt, lowering the interest paid. In 1996, the Company successfully
refinanced its Mexican bank debt again, to very acceptable levels (see note 3 in
the Financials).
Mexico experienced a 50% currency devaluation in December of 1994 which
has impacted the company. Banca Serfin S.A. has advised that the Company is
receiving and will continue to receive the lowest interest rates available given
the current economic conditions in Mexico. Expansion plans will be funded by
earnings and equity capital. These plans include expansion of the existing
factory as well as building a new high production factory and new and continuing
quarry development.
Financial Resources:
Future funds for operations and expansion are expected to be obtained
through debt and equity financing as well as earnings from operations.
Operations can support the Company's capital needs and equity financing is
considered practical, by management, for the expansion plans.
Industry Segments:
Virtually all of future operating revenues are expected to be derived
from mining, importing, cutting, finishing, selling, brokering, exporting and
importing products made of stone (e.g., marble, limestone and travertine)
Competition:
All phases of the Corporation's activities listed in its Industry
Segment are highly competitive and, therefore, investment in the Corporation
involves risks arising out of this competition. The Corporation competes with
numerous direct competitors for the best sales contracts and distributor
relationships. The most significant competition is from the numerous producers
in Italy. The Company does have some competitive advantage due to the
geographical location being much closer to the U.S.A. market, thus reducing
shipping time and costs.
Effect of Compliance with Governmental Policies:
The earnings of the Corporation may be effected by governmental
regulation and legislation which, among other things, may effect importation
requirements, tariffs, interstate commerce, and the general building,
development and re-modeling climate. The policies of the various governmental
authorities influence to a significant extent the overall growth and no growth
climates for importation, exportation, building and development.
Inflation or Deflation:
The management does not believe that inflation or deflation will have a
demonstrable effect on the operation of the Corporation; however, it is possible
that inflation will have a negative effect on the Corporation, especially if
expenses such as employee compensation, shipping and communications increase.
Increases in these areas may not be readily recoverable in the prices and
services offered by the Corporation. To the extent that inflation results in
higher interest rates and has other adverse effects on the value of securities,
it may adversely effect the Corporation's financial position and results of
operations. It is also possible that deflation will have a negative effect, as
well, particularly with respect to the prices and demand for the Corporation's
products and the values of its assets. Mexico experienced 50% inflation in
December 1994 due to the peso devaluation which actually benefitted the company
for a few months by reducing the effective cost of doing business. The Company
sells in dollars and pays its production costs primarily in Pesos. However, the
debt is primarily in U.S. dollars and all of the marketing, sales and equipment
costs are in dollars. Looking at the entire situation it is expected that long
term this Mexican inflation issue will have no effect to a slightly positive
influence.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Financial information required by this Item and included in the Report
is set forth beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure: None.
PART III
Item 10. Director and Executive Officers of the Registrant.
Name, Age Since Position - Offices
- --------- ----- ------------------
Franklin Cunningham, 45 1989 President, Treasurer, Director
Spencer Cunningham, 47 1994 Executive Vice President, Director
Lee M. Cunningham, 45 1989 Corporate Secretary, Director
L. Ernest Whitesel, 58 1992 Director
Directors are elected by stockholders to hold office until the next
annual meeting of stockholders and until their successors are elected and have
qualified. Upon the death, resignation or removal of a Director, the Board may
appoint a replacement for the unexpired term of his/her predecessor. Officers
are elected by the Board of Directors and serve at the pleasure of the Board.
The name, age and principal occupation of the Directors and Officers
who served during 1996, or who continue to serve as of year end 1996, and
certain information regarding his or her business experience, are set forth as
follows:
Franklin Cunningham, Age 45: Mr. Cunningham has previously formed
several companies, some of which are in the dimensional (architectural) stone
industry and all of which continue today in profitable operation, with the
exception of Cunningham & Associates, which was phased out when Mr. Cunningham
joined the Company.
His first company was founded in 1973. In the interim until the
establishment of Cunningham & Associates, he served as an officer of Intile
Designs of Arizona, Inc. Intile Designs of Arizona, Inc. is a substantially
owned subsidiary of Intile Designs, Inc., headquartered in Houston, Texas, in
which Mr. Cunningham continues today as a stockholder.
During Mr. Cunningham's tenure, Intile Designs, Inc. was placed on
"INC." magazine's 1986 list of "500 Fastest Growing Companies". Mr. Cunningham
contributed significantly to the growth of Intile as a direct result of
advantageous relationships he developed and his perceptive abilities to
anticipate demands in the related markets with respect to product mix,
costing/pricing strategies and presentation.
As a result of his experience in the industry, Mr. Cunningham has
strong business ties with numerous key, foreign national and domestic
architectural stone and ceramic tile industries companies including raw material
suppliers, equipment suppliers, manufacturers, manufacturers representatives,
distributors, architects and designers. In addition, Mr. Cunningham has proven
experience in wholesale, resale, distribution, manufacturing and quarrying of
architectural stone products, and has built wholesale, retail and warehouse
facilities for these operations.
Prior to his joining the Company, Mr. Cunningham was doing a
substantial business in the United States, Mexico, Italy, West Germany, Taiwan,
Spain, Portugal, India, Turkey and Indonesia.
Lee M. Cunningham, Age 45: Ms. Cunningham was active for eighteen years
in interior design and furnishings, building products and building construction,
and importing. She has both conceptual understanding and established both
domestic and international relationships in these fields, which relate to
architectural stone products,
<PAGE>
offering the resulting benefit to the Company. She is a licensed general
contractor in the State of Arizona and has been responsible for several
residential and commercial building projects. She earned her B.A degree from
Western International University and her M.A. in Human Resources from Ottawa
University.
From 1972 to 1986, Ms. Cunningham owned and managed an interior design
studio and furniture showroom, during which time she gained experience in the
architectural stone industry. Following the sale of her showroom, she was
employed by Intile Designs of Arizona in design and marketing. During that time,
she was also involved in the purchase and sale of architectural stone products.
She remains a stockholder of Intile Designs, Inc., which is the parent company
of Intile Designs of Arizona.
Ms. Cunningham is also currently active as a consultant in human
resources and leadership, and facilitates seminars for professional growth.
Spencer W. Cunningham Age 47: Mr. Cunningham is the Executive Vice
President and Director since August 24, 1994. He is a graduate of Ohio State
University School of Business Administration, holding a B.S.B.A. degree in Real
Estate and Urban Land Economics. For his first post graduate employment in 1973,
he was hired by the Chairman of the Board of the third largest Ohio savings and
loan association to establish its first commercial lending department, where he
worked as commercial loan officer and commercial real estate appraiser,
reporting directly to the Chairman, Senior Vice President and Special Loan
Committee. In one of numerous projects Mr. Cunningham did a land use feasibility
study for, and designed a multi-million dollar, multi-tiered parking garage for
the company, upon which effort the company committed funding and construction of
the facility in Columbus, Ohio.
In 1975, Mr. Cunningham left the lending industry to establish a
successful real estate development company specializing in renovations of
historic real properties. Serving at various times as Vice President, Director,
Treasurer and/or Secretary of Spencer Cunningham & Associates, Inc. (SC&A), an
Ohio corporation (1980-1985), he was an association group insurance
administrator and broker specializing in professional liability insurances and
other specialty lines coverages, licensed by numerous carriers from coast to
coast. SC&A was recognized nationally as a leader in its field, earning millions
in premium dollars annually with only two licensees employed. The Cunningham
interest was sold in 1984. Mr. Cunningham fulfilled his obligation to the firm
and left in 1985.
Since then, he has operated his private real estate construction
company and served as an independent business development consultant in Ohio and
Arizona, prior to joining this Company.
L. Ernest Whitesel, Age 57: From 1962 to 1974, Mr. Whitesel was an
owner in an automotive industry dealership and a consultant to the industry. He
served as general manager, vice president and partner in the Pete Ellis
Automotive Dealerships throughout the Southwestern United States. This included
overseeing the daily operations of five dealerships having average annual gross
retail sales in excess of $225,000,000. From 1981 to 1990, he was the principal
partner in a general insurance agency, handling life, accident, health and
service contracts. Average annual gross sales were $10,000,000. From 1990 to
present, Mr. Whitesel has been a semi-retired investor; however, as a principal
investor in Interactive Media Technology, a NASDAQ bulletin board listed
(non-reporting) company, he serves as National Sales Manager.
(a) Family Relationships: Franklin Cunningham and Lee M. Cunningham are
husband and wife. Spencer W. Cunningham is the brother of Franklin Cunningham
and, thereby, the brother-in-law of Lee M. Cunningham. Lee M. Cunningham is,
thereby, a sister-in-law to Spencer W. Cunningham. Excepting the aforementioned,
there are no other family relationships which exist between or among any of the
Officers or Directors of the Company.
(b) Other Directorships: To the best of the knowledge of the Company,
and according to the representations of the Directors, no Director, except as
provided herein, is a director in any other company with a class of securities
registered pursuant to section 12 of the Securities Exchange Act or subject to
the requirements
<PAGE>
of section 15(d) of such Act or any company registered under the Investment
Company Act of 1940.
(b) Involvement in Certain Legal Proceedings: The Company and its
President are the subject of an IRS audit for the years 1989, 1990 and 1991 and
a notice of deficiency of about $1,000,000 to the Company and about $1,640,000
to Frank and Lee Cunningham has been served. It is the opinion of management,
legal counsel and accountants that these claims are baseless and unfounded. This
has been resolved; see item 3, Legal Proceedings.
Item 11. Executive Compensation.
(a) Cash: The Corporation paid salaries to two executives in 1996, as
follows:
Frank Cunningham $72,000
Spencer Cunningham $36,000
(b) Bonuses and Deferred Compensation:
Name of Individual Capacities in Cash Amount,
or Number in Group Which Served Compensation
------------------ ------------ ------------
Franklin Cunningham President, Director $0.00
(c) Proposed Remuneration. The Company is obligated to pay the
President $120,000 annually to commence at the direction of the President of the
Company.
(d) Remuneration of Directors. Directors do not receive a fee for Board
meetings attended and are not reimbursed for expenses incurred in attending such
meetings; however, the Board reserves the right to award a nominal fee for
attendance should the Board decide it prudent to do so. Said fee shall not be
retroactive.
(e) Options, Warrants or Rights. No options, warrants or rights have
been granted to any Officer or Director of the Corporation.
(f) Non-cash Compensation: None.
Item 12. Security Ownership of certain Beneficial Owners and Management.
The following tables set forth, as of December 31, 1996, information
with respect to the ownership of each person known by the Corporation to own
beneficially more than five (5%) percent of the $.001 par value common stock
(voting stock) of the Corporation and the ownership of all Directors
individually and all Officers and Directors as a group, and information with
respect to the ownership of each Director and all Directors and Officers as a
group known by the Registrant to own beneficially any other class of security of
the Registrant, naming the class of equity security. In the case of Officer and
Directors, the information as to shares beneficially owned, not necessarily
being within the knowledge of the Corporation, has been furnished by the
respective Officers and Directors individually.
Percentages listed are approximate.
<TABLE>
<CAPTION>
Name and Address Number of Title Percent
of Beneficial Owner Shares Owned of Class of Class
------------------- ------------ -------- --------
<S> <C> <C> <C>
Franklin & Lee M. Cunningham A 18,119,695 Common 53%
7575 N. Indian Bend Rd. #2001
Scottsdale, Arizona 85250
Spencer W. Cunningham 1,138,000 Common 3%
101 N. 7th Street #121
Phoenix, Arizona 85035
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
L. Ernest Whitesel 23,750 Common 0%
311 E. Country Gables Dr.
Phoenix, 85022
All Officers and
Directors as a Group B 19,281,445 Common 56%
Officers of subsidiary company,
Marmoles Muguiro, S.A. de C.V.:
Jaime Muguiro 4,280,000 Common 12%
Boulevard Francisco Villa
Km 2 CD. Industrial
Durango, Durango, Mexico
Alejandro Muguiro 1,520,000 Common 4%
Boulevard Francisco Villa
Km 2 CD. Industrial
Durango, Durango, Mexico
----- Last Item / Common Class -----
Note: All issued Preferred Stock C has been exercised or cancelled and returned to treasury.
----- Last Item / Preferred Class -----
None issued or outstanding (See Legal Proceedings, Item 3)
</TABLE>
NOTES:
------
(A) The voting and investment power in regards to those shares
owned by Franklin and Lee M. Cunningham are shared equally between
them. In all other cases, the party named has represented that they
have sole voting and investment powers in regards to the shares owned.
(B) "All Officers and Directors as a Group" with respect to
the Class of Common Stock include four persons.
(C) All Preferred Stock shares are non-voting and are
convertible at the rate of ten (10) Common shares for one (1) Preferred
share. Preferred shares may only be converted with the prior approval
of the Board of Directors.There are no Preferred shares issued and
outstanding at this time (see Legal Proceedings, Item 3).
Item 13. Certain Relationships and Related Transactions.
(See paragraph 2, item 2, "Properties".) Jaime Muguiro is the President
and Operations Manager of Marmoles Muguiro, S.A. de C.V., a wholly owned
subsidiary of the Registrant, and has received compensation in the Company's
purchase of the lease rights described as Verde Imperiale marble deposit.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a,1) Financial Statements: The financial statements of World Wide
Stone Corporation, included in the Annual Report to shareholders for the year
1996, and filed in accordance with the provisions of this Item, are found in the
response to Item 8 and are included as a part of this Annual Report. They are:
(See Page 13)
<PAGE>
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
1. Report of Certified Public Accountant. F-1
2. Balance Sheet, December 31, 1996 and 1995 F-2
3. Statement of Stockholders Equity, December 31, F-3
1993, 1994, 1995, and 1996
4. Statement of Operations, December 31, F-4
1994, 1995, and 1996
5. Statement of Cash Flows, December 31, F-5
1994, 1995 and 1996
6. Notes to Financial Statements F-6 to F-11
</TABLE>
(a,2) Financial Statement Schedules: The financial statement
schedules required to be filed, if any, are included in the financial
statements found in the response to Item 8.
(a,3) Exhibits:
(A) Articles of Incorporation of the Registrant, as
amended to date, incorporated by reference on Fom 10-K, Year
Ended December 31, 1995
(B) By-Laws of the Corporation, as amended to date,
incorporated by reference on Fom 10-K, Year Ended December 31,
1995
(b) Reports on Form 8-K: The current reports on Form 8-K which were
filed during the last quarter of the period covered by this Report by the
Registrant with the Securities and Exchange Commission are: NONE.
(LAST ITEM / SIGNATURES ON PAGE 14)
<PAGE>
SIGNATURES:
Pursuant to the requirement of Section 13 or 15(d) 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.
Dated: March 27, 1997 WORLD WIDE STONE CORPORATION
By: /s/ Frank Cunningham
---------------------------------
Frank Cunningham
Director, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
By: /s/ Frank Cunningham Director, Chairman March 27, 1997
------------------------------ of the Board, and
Frank Cunningham President
By: /s/ Lee M. Cunningham Director, and March 27, 1997
------------------------------ Secretary
Lee M. Cunningham
By: /s/ Spencer W. Cunningham Director and March 27, 1997
------------------------------ Executive Vice
Spencer W. Cunningham President
By: /s/ L. Ernest Whitesel Director March 27, 1997
------------------------------
L. Ernest Whitesel
</TABLE>
<PAGE>
MARK SHELLEY, CPA
110 S. Mesa Dr. #1
Mesa, Arizona 85210
(602) 833-4054
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
World Wide Stone Corporation
I have audited the accompanying consolidated balance sheet of World
Wide Stone Corporation as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three years ended December 31, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I have conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statements
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of World
Wide Stone Corporation as of December 31, 1996 and 1995 and the consolidated
results of their operations and their cash flows for the three years ended
December 31, 1996 in conformity with generally accepted accounting principals.
Mark Shelley CPA
by: /s/Mark Shelley CPA/
--------------------
March 25, 1997
<PAGE>
World Wide Stone Corporation
Consolidated Balance Sheet
as of December 31, 1966 and 1995
Assets
1996 1995
--------- ---------
Cash 43,756 23,570
Accounts Receivable 27,561 109,116
Inventory 590,335 296,495
Prepaid Expenses 8,316
--------- ---------
Total Current Assets 669,788 429,181
Property, Plant and Equipment (net of depreciation) 4,123,493 4,038,839
Trade Name and Company Files (net of amortization) 209,751 227,990
Prepaid Taxes Mexico 108,981 52,435
Total Assets 5,180,588 4,750,440
========= =========
Liabilities
Accounts Payable 113,496 38,485
Taxes, Pensions and Fees Payable 10,386 22,627
Short Term Notes Payable 43,449 52,516
Current Portion of Long Term Debt 89,932 30,182
--------- ---------
Total Current Liabilities 257,263 143,810
--------- ---------
Bank Debt Mexico 805,166 811,830
Equipment Loans US 35,953 28,512
--------- ---------
Total Liabilities 1,098,382 984,152
--------- ---------
Stockholders' Equity
Common Stock
100,000,000 shares authorized, 35,222,618
and 34,225,868 shares outstanding, 35,223 34,226
Paid in Capital 7,889,017 7,838,209
Retained Earnings (Loss) (3,842,034) (4,106,147)
---------- ----------
Total Stockholders' Equity 4,082,206 3,766,288
---------- ----------
Total Liabilities and Stockholders' Equity 5,180,588 4,740,440
========== ==========
par value $.001
The accompanying notes are an integral part of these statements
<PAGE>
World Wide Stone Corporation
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 1966, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Paid In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 34,382,886 34,383 6,619,427 (3,823,512) 2,830,298
Return and Cancellation of Stock (5,182,018) (5,182) 5,182 -
Sale of Stock 1,125,000 1,125
Retained Earnings (Loss) (264,400) 264,400
-------------------------------------------------------------------------
Balance December 31, 1994 30,325,868 30,868 6,624,609 (4,087,912) 3,766,288
Additional Shares to Mexican Managers 1,800,000 1,800 (1,800) -
Sales of Stock 200,000 200 19,800 20,000
Retirement of Shares (100,000) (100) (2,400) (2,500)
Purchase of Green Quarry 2,000,000 2,000 1,198,000 1,200,000
Retained Earnings (Loss) (18,235) (18,235)
-------------------------------------------------------------------------
Balance December 31, 1995 34,225,868 34,226 7,838,209 (4,106,147) 3,766,288
Stock to Employees 300,000 300 (300) -
Stock Sales 696,750 697 51,108 51,805
Retained Earnings (Loss) 264,113 264,113
-------------------------------------------------------------------------
Balance December 31, 1996 35,222,618 35,223 7,889,017 (3,842,034) 4,082,206
---------- ------ --------- ----------- ---------
-------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
World Wide Stone Corporation
Consolidated Statement of Operations
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
----------- ----------- -----------
Sales and Revenue 1,928,733 1,092,479 642,877
Costs of Goods Sold (1,042,384 (764,358) (755,362)
----------- ----------- -----------
Gross Profit 886,349 328,121 (112,485)
----------- ----------- -----------
Costs and Expenses
General and Administrative (605,231) (383,190) (112,128)
Depreciation (11,299) (10,128) (5,631)
Amortization (104) (18,394)
----------- ----------- -----------
(616,530) (393,422) (136,153)
----------- ----------- -----------
Net Income from Operations 269,819 (65,301) (248,638)
Gain (Loss) on Currency Translation (381) 48,305 100,304
Interest Income 1,583 1,810
Interest Expense (5,275) (2,772) (117,826)
----------- ----------- -----------
(5,656) 47,116 (15,712)
----------- ----------- -----------
Income (Loss) before Income Taxes 264,163 (18,185) (264,350)
Provision for Income Taxes (50) (50) (50)
----------- ----------- -----------
Net Income (Loss) 264,113 (18,235) (264,400)
=========== =========== ===========
Earnings per Share 0.01 a (0.01)
----------- ----------- -----------
Average Number of Common
shares Outstanding 35,222,618 32,154,361 30,599,164
----------- ----------- -----------
a: less than $.01
The accompanying notes are an integral part of these statements
<PAGE>
World Wide Stone Corporation
Consolidated Statement of Cash Flows
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
-------- -------- --------
Cash Provided by Operations
Net Income (Loss) 264,113 (18,235) (264,400)
Amortization 18,239 18,343 18,394
Depreciation 205,543 196,019 186,528
Change in Accounts Receivable 81,555 (51,955) (97,786)
Change in Inventory (293,840) (101,650) (154,594)
Change in Payables 75,011 (154,624) 28,716
Prepaid Expenses (8,136) (28,944) 6,784
Deposits (66,580) (432) (1,563)
Prepaid Taxes (56,546)
Taxes, Fees, Pensions (12,241)
Employee Loans 63,752
-------- -------- --------
Net Cash from Operations 207,118 (77,726) (277,921)
-------- -------- --------
Cash Used in Investing
Purchase of Fixed Assets (290,197) (53,183) (120,032)
Stock Purchase (2,500)
-------- -------- --------
(290,197) (55,683) (120,032)
-------- -------- --------
Cash provided by Financing
Bank Debt 48,666 114,873 395,544
Equipment Debt 11,861 16,138 13,174
Loan to Stockholder (25,782) (20,820)
Short Term Notes Payable (9,067) 2,567 4,949
Sale of Stock 51,805 20,000 1,125
-------- -------- --------
Cash provided by Financing 103,265 127,796 393,972
-------- -------- --------
Net Increase (Decrease) in Cash 20,186 (5,613) (3,981)
Beginning Cash Balance 23,570 29,183 33,164
-------- -------- --------
Ending Cash Balance 43,756 23,570 29,183
======== ======== ========
Significant Non Cash Transactions, See Note 11
The accompanying notes are an integral part of these statements
<PAGE>
WORLD WIDE STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of operations and summary of significant accounting policies:
Nature of operations:
The Company is in the dimensional stone production and sales business. In
March 1991 the Company purchased dimensional stone production facilities in
Durango, Mexico. This plant started operations in July 1993 and became fully
operational in September 1994. The Company had one operating quarry in 1995.
During the year 1996 the Company built a second plant next to the original one
in Durango Mexico. This new plant will handle a new line of antique and tumbled
products. New offices and employee bathrooms and kitchen are also in process of
being built.
Principals of consolidation:
The financial statements include all of the assets and liabilities of the
U.S. company as well as those of the Mexican companies. The Mexican plant
consists of three Mexican entities, namely: Marmoles Muguiro, S.A., Sociedad
Piedra Sierra, S.A. and a trust which holds approximately four acres of real
estate.
All material intercompany transactions, accounts and balances have been
eliminated.
Accounts receivable:
Management considers all accounts receivable to be fully collectible;
however a small allowance has been established to handle any account
contingencies.
Inventory:
Inventory for the Company is stated at cost. All of the costs for 1996 and
1995 associated with the production of tile in the Mexican plant have been
factored into the value of the cost of goods sold and the ending inventory.
Costs of goods sold also includes freight from Mexico to the United States.
Inventory as of December 31, 1996 and 1995 was located at the plant in Durango,
Mexico and at the showroom-warehouse in Tempe, Arizona. Interest expense of the
Mexican bank loans for 1996 and 1995 have been capitalized and are found in the
ending inventory and the cost of goods sold. Depreciation on the Mexican based
equipment is also factored into the inventory.
Property, equipment and depreciation:
Depreciable property and equipment are stated at cost. Depreciation is
being provided by use of straight-line method over the estimated useful lives of
the assets.
Income recognition:
Income is recognized on sales when a contract (purchase order) is signed by
the buyer and the shipment is made of the product either from the warehouse in
Phoenix or directly from the factory in Durango, Mexico.
Interest income is recognized when accrued.
Income taxes:
Provision is made for deferred income taxes where differences exist between
the period in which transactions
<PAGE>
affect taxable income and the period in which they enter into the determination
of income in the financial statements. As of December 31, 1995 the consolidated
Company had a Net Operating Loss (NOL) carry forward for federal income tax
purposes of approximately 4,000,000. The future value of the NOL is not
reflected in the face of the financial statements.
Earnings per share:
Earnings per share are computed by dividing net income by weighted average
number of shares outstanding. There were no other items which were deemed to be
common stock equivalents.
Foreign Currency Translation
The Company's wholly owned subsidiaries, maintain their books and records
in Mexican pesos. Their functional currency however is U.S. dollars. Therefore
these subsidiaries utilize the remeasurement method of foreign currency
translation when consolidated.
The remeasurement method of foreign currency translation converts all
monetary assets and liabilities from pesos to U.S. dollars at the current rate
of exchange at the balance sheet date. All non-monetary assets and liabilities
are converted at the historical rates that were present when the particular
transaction took place. Revenue and expenses from the statements of operations
are converted from pesos to U.S. dollars at a weighted average conversion rate.
Depreciation, amortization, and similar historical cost based expenses use a
historical based rate. Any translation gain or loss is reported on the Company's
consolidated statement of operations.
Warranty Payable/Expense
The Company offers no warranty written or verbal. All products are shipped
FOB Mexican plant with either the client or the trucking company assuming full
responsibility for the product. Company employees at times do try to help
resolve disputes between the client, the trucking company and/or the
installation contractor. They have also assisted clients who need some training
in the care and upkeep of marble flooring. The amount expended currently for
these public relation/goodwill actions are minimal.
2. Related Party Transactions
The Company has a private demand note to a brother of the chairman for
$9,949.
3. Mexican Bank Debt
In May 1993, the Company obtained loans of $250,000 from Banca Serfin, ( a
Mexican Bank) to develop the stone plant. The Company has received additional
loans from the banks in subsequent years as they expanded and modernized the
plant. The loans are secured by the Mexican based equipment. Beginning in 1995
and ending in 1996 the Company converted their loans from Bank Serfin based to
Bancomex based. Bancomex is a second tier bank supported by the Mexican
government. The savings is reflected in a much improved gross profit.
4. Property, Plant and Equipment
Below is a summary of the fixed assets of the Company. All assets are
amortized over their useful lives on a straight line basis. The depreciation
attributed to Mexico is included in the Costs of Goods Sold section of the
Statement of Operations. The depreciation attributed to Phoenix is shown
separately on the Statement of Operations.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Mexican Property, Plant Specialty Systems (40-10 years) and
Mexican Machinery, Equipment, Vehicles (12 - 5 years) 3,503,349 3,241,238
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
US Machinery, Equipment and Vehicles 98,392 70,306
Green Quarry Lease (Note 7) 1,200,000 1,200,000
---------- ----------
4,801,741 4,551,544
Accumulated Depreciation (678,248) (472,705)
---------- ----------
Net Property, Plant and Equipment 4,123,493 4,038,839
---------- ----------
</TABLE>
5. General and Administrative
1996 1995 1994
------- ------- -------
Salaries and Wages 239,539 152,669 10,277
Advertising and Promotion 60,320 15,069 10,767
Commissions and Consulting 34,178 76,370 2,637
Legal and Accounting 29,776 31,536 7,750
Rent 33,135 20,711 2,812
Payroll Taxes and Fees 22,735 11,317 1,156
Travel 36,123 13,388 28,821
Shop and Office Supplies 57,470
Other Expenses 91,155 62,130 47,908
------- ------- -------
Total General and Administrative 605,231 383,190 112,128
======= ======= =======
6. Leases and Royalty
The Company has one year left on its lease for its showroom/warehouse
in Tempe, Arizona. The Company began an one year lease of a showroom in Anaheim,
California in January, 1997.
1997 1998 1999 2000 2001
Rent 29,364 0 0 0 0
Equipment 1,796 299
----- ---
Total 31,160 299
====== ===
The Company pays a royalty on its leased quarry of 90 pesos per cubic
meter. This is approximately $16.90 at year end. These payments go into Cost of
Goods Sold.
The Company will pay a royalty on its green quarry rights purchase of
30 pesos per cubic meter once production begins. This will be approximately $4.
7. Purchase of Green Quarry
On December 3, 1995 the Company purchased the rights to mine a quarry
of special green quartzite in the state of Chihuahua, Mexico. The Company paid
2,000,000 shares of R-144 common stock for these rights. The Company also agreed
to pay a royalty of 700 pesos per month (about $91), until the quarry is
operational and then 30 pesos per cubic meter thereafter. The 30 pesos will be
adjusted for inflation. The valuation of the quarry has been placed at
$1,200,000. This quarry will b e amortized over its expected production.
Currently only preliminary preparations have been made to this quarry.
(Continued)
<PAGE>
8. Provision for Income Taxes
Provision is made for deferred income taxes where differences exist
between the period in which transactions affect taxable income and the period in
which they enter into the determination of income in the financial statements.
As of December 31, 1996 the consolidated Company had a total Net Operating Loss
(NOL) carry forward for federal income tax purposes of approximately $4,000,000.
The future value of the NOL is not reflected in the face of the financial
statements.
1996 1995 1994
Net Deferred Tax Benefit and
Valuation Adjustment 0 0 0
Current Taxes Payable 50 50 50
-- -- --
Provision for Income Taxes 50 50 50
== == ==
9. Interest Expense
1996 1995
Mexican Banks (included in costs of goods sold) 166,752 246,554
Phoenix Equipment Loans 5,275 2,772
------- -------
Total Interest Expense 172,027 249,326
======= =======
10. IRS Audit
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. The President also received, the same day, a Notice of Deficiency
for the same period, in the amount of $937,923 plus interest and penalties in
the amount of $703,443. Both cases were referred to tax court and were heard 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 I.R.C. 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, nor 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 provisions of I.R.C. 6663.
11. Non Cash Transactions
1996
None
1995
Purchase of rights to green quarry for 2,000,000 shares of stock. Final
payment of 1,800,000 shares for investment of $140,000 in 1993.
1994
Purchase of consulting with 1,125,000 shares of common stock.
Return and cancellation of 1,572,381 shares of common stock previously
written off
12. Subsequent Events
In January 1997 the Company opened a showroom in Anaheim, California.
<PAGE>
<TABLE>
<CAPTION>
Loan Description Ending Rate Principal
<S> <C> <C>
1995
Bancomex range 19.55% to 12.1% 611,830
90 day renewable notes
US dollars
NAFINSA 14.65% 200,000
renewable note
US dollars
Installment Note 23.75% 5,394
--------
Mexican pesos
Debt Before Accrued Interest 817,224
Accrued Interest 16,230
--------
Total Mexican Bank Debt 833,454
========
1996
Bancomex Note 12% 44,213
renewable note
US dollars
Bancomex Note 12.1% 81,559
renewable note
US dollars
Bancomex Note 11.05% 674,000
renewable note
US dollars
Equipment Installment Note 5,394
--------
Debt Before Accrued Interest 805,166
Accrued Interest 76,954
--------
Total Mexican Bank Debt 882,120
========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U. S. Dollar
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 43,756
<SECURITIES> 0
<RECEIVABLES> 27,561
<ALLOWANCES> 0
<INVENTORY> 590,335
<CURRENT-ASSETS> 669,788
<PP&E> 4,123,493
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,180,588
<CURRENT-LIABILITIES> 257,263
<BONDS> 0
0
0
<COMMON> 35,222,618
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,180,588
<SALES> 1,928,733
<TOTAL-REVENUES> 1,928,733
<CGS> 1,042,384
<TOTAL-COSTS> 1,658,914
<OTHER-EXPENSES> 616,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,275
<INCOME-PRETAX> 264,163
<INCOME-TAX> 50
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264,113
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
