UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO 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
(Exact Name of Registrant as specified in its Charter)
NEVADA 33-0297934
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5236 S. 40th Street, Phoenix, AZ 85040
(Address of Principal Executive Offices) (Zip Code)
602-438-1001
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or, for such 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.
<PAGE>
EXPLANATORY NOTE REGARDING RESTATEMENT OF FINANCIAL STATEMENTS:
In connection with the audit of its financial statements for the year
ended December 31, 1997, World Wide Stone Corporation (the "Company") determined
that the acquisition of certain quarry rights in December of 1995 had not been
properly recorded in its financial statements for the year ended December 31,
1995. In that transaction, the Company issued two million shares of Common Stock
valued at $1,200,000 to a director and officer of one of the Company's Mexican
subsidiaries. The Company originally recorded the value of the shares issued in
connection with this transaction as an asset in its financial statements for the
year ended December 31, 1995. Under Statement of Financial Accounting Standards
("SFAS") No. 13, ACCOUNTING FOR LEASES, only payments related to a lease
acquisition with independent third parties are eligible for capitalization.
Accordingly, the amounts should have been expensed in the fourth quarter of 1995
when the transaction occurred. As a result, the Company has restated its
financial statements for the year ended December 31, 1995 to reflect the proper
application of SFAS No. 13. In addition, the Company has adjusted the financial
statements for the year ended December 31, 1995 to reclassify an understatement
to common stock and "paid in capital" of $15,000. Further, the Company also
discovered that certain accruals for taxes and penalties totaling $70,485 were
not reflected on its 1996 financial statements and has restated them
accordingly. Adjustments have been made to retained earnings, common stock, paid
in capital, other assets and current liabilities as of January 1, 1996 and 1997
to correct these items.
The company hereby amends and restates certain items of its 10-Q for
the quarter ended March 31, 1997, to reflect the restatement of its financial
statements for the years ended December 31, 1995 and 1996, as described above.
The information contained in this Form 10-Q/A reflects, where appropriate,
changes required to conform to the restatement of the financial statements.
2
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
Index to Form 10-Q/A
For the Quarter Ended March 31, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996............................4
Consolidated Statement of Operations (Income)
Three months ended March 31, 1997 and 1996......................5
Consolidated Statement of Cash Flows
Three months ended March 31, 1997 and 1996......................6
Notes to Financial Statements...................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports.............................................8
3
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS
(UNAUDITED) (RESTATED)
MARCH 31, 1997 DEC. 31, 1996
-------------- -------------
CURRENT ASSETS:
Cash $ 138,973 $ 43,756
Accounts receivable 96,900 27,561
Inventories 551,242 590,335
Prepaid expenses and other 68,575 68,575
----------- -----------
Total current assets 855,690 730,227
PROPERTY, PLANT AND EQUIPMENT, net 2,886,975 2,923,493
COST IN EXCESS OF NET ASSETS ACQUIRED, net
of accumulated amortization 205,191 209,751
OTHER ASSETS:
Other receivables 131,187 108,981
Prepaid taxes 7,020 8,136
----------- -----------
Total assets $ 4,086,063 $ 3,980,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 87,179 $ 113,496
Accrued liabilities 79,300 80,871
Current portion of long-term debt 126,141 133,381
Other 831,629 805,166
----------- -----------
Total current liabilities 1,124,249 1,132,914
LONG-TERM DEBT, net of current portion 40,271 35,953
----------- -----------
Total liabilities 1,164,520 1,168,867
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 35,426 35,426
Additional paid-in capital 7,903,814 7,903,814
Accumulated deficit (5,127,519) (5,321,147)
Current period earnings 109,822 193,628
----------- -----------
Total stockholders' equity 2,921,543 2,811,721
----------- -----------
Total liabilities and stockholders' equity $ 4,086,063 $ 3,980,588
=========== ===========
4
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
Mar. 31, Mar. 31,
1997 1996
---- ----
REVENUE $ 650,834 $ 450,509
COST OF GOODS SOLD 319,798 270,793
--------- ---------
Gross profit 331,036 179,716
COST AND EXPENSES:
Selling, general and administrative 189,405 126,308
Depreciation and amortization 5,346 2,825
--------- ---------
Income from operations 136,285 50,583
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 0 0
Interest expense (26,463) (87)
--------- ---------
(26,463) (87)
--------- ---------
INCOME BEFORE INCOME TAXES 109,822 50,496
BENEFIT (PROVISION) FOR INCOME TAXES 0 0
--------- ---------
Net income $ 109,822 $ 50,496
========= =========
5
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
March 31, March 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 109,822 $ 50,496
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 55,946 48,000
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable (69,339) (102,975)
(Increase) decrease in inventories 39,093 (13,242)
Decrease in prepaid expenses and other 1,116 0
(Increase) in other receivable (22,206) (9,024)
Increase (decrease) in accounts payable (26,317) 10,470
Increase (decrease) in accrued liabilities (1,571) 24,711
--------- ---------
Net cash provided by operating activities 86,544 8,436
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment, net (14,868) (2,061)
--------- ---------
Net cash used in investing activities (14,868) (2,061)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt 30,781 43,276
Payment on short-term notes payable (7,240) (4,827)
--------- ---------
Net cash provided by financing activities 23,541 38,449
--------- ---------
NET INCREASE IN CASH 95,217 44,824
CASH, beginning of year 43,756 23,569
--------- ---------
CASH, end of year $ 138,973 $ 68,393
========= =========
6
<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.
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 includes 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.
Inventories at March 31, 1997 consist of finished goods, work in progress and
raw materials amounting to $468,890, $17,441, and $64,911, respectively.
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 44%
over the same period in 1996. Pre-tax earnings for the same period increased by
117%. 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
7
<PAGE>
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 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's 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. With the exception of interest carrying
charges, all of Phase I was paid for with earnings.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS:
(a) Exhibit 27.1: Amended and Restated Financial Data Schedule
(b) Reports on Form 8-K: Not Applicable
8
<PAGE>
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 2, 1998 World Wide Stone Corporation
(Registrant)
BY: /s/ Franklin Cunningham
------------------------------
Franklin Cunningham, President
9
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF WORLD WIDE STONE CORPORATION (THE
"COMPANY") FOR THE THREE MONTHS ENDED MARCH 31, 1997, AS RESTATED. THIS SCHEDULE
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH RESTATED FINANCIAL STATEMENTS.
IN ADDITION, CERTAIN ENTRIES ON THIS SCHEDULE HAVE BEEN AMENDED FROM THE
PREVIOUS FINANCIAL DATA SCHEDULE FILED FOR THIS PERIOD. THIS EXHIBIT SHALL NOT
BE DEEMED FILED FOR THE PURPOSE OF SECTION 11 OF THE SECURITIES ACT OF 1933 AND
SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934, OR OTHERWISE SUBJECT TO THE
LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY OTHER FILING
WHICH INCORPORATES THIS REPORT BY REFERENCE, UNLESS SUCH OTHER FILING EXPRESSLY
INCORPORATES THIS EXHIBIT BY REFERENCE.
[/LEGEND]
<MULTIPLIER> 1
<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
<INVENTORY> 551,242
<CURRENT-ASSETS> 855,690
<PP&E> 3,890,198
<DEPRECIATION> 798,032
<TOTAL-ASSETS> 4,086,063
<CURRENT-LIABILITIES> 1,124,249
<BONDS> 40,271
0
0
<COMMON> 35,426
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<TOTAL-LIABILITY-AND-EQUITY> 4,086,063
<SALES> 650,834
<TOTAL-REVENUES> 650,834
<CGS> 319,798
<TOTAL-COSTS> 319,798
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