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 June 30, 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 June 30, 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 its 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 June 30, 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 June 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996.............................4
Consolidated Statement of Operations (Income)
Three months ended June 30, 1997 and 1996.......................5
Consolidated Statement of Operations (Income)
Six months ended June 30, 1997 and 1996.........................6
Consolidated Statement of Cash Flows
Six months ended June 30, 1997 and 1996.........................7
Notes to Financial Statements...................................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports............................................9
3
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
(UNAUDITED) (RESTATED)
JUNE 30, 1997 DEC. 31, 1996
------------- -------------
CURRENT ASSETS:
Cash $ 84,333 $ 43,756
Accounts receivable 144,593 27,561
Inventories 559,697 590,335
Prepaid expenses and other 2,895 68,575
----------- -----------
Total current assets 791,518 730,227
PROPERTY, PLANT AND EQUIPMENT, net 3,105,738 2,923,493
COST IN EXCESS OF NET ASSETS ACQUIRED, net of
accumulated amortization 200,631 209,751
OTHER ASSETS:
Other receivables 205,467 108,981
Prepaid taxes 6,395 8,136
----------- -----------
Total assets $ 4,309,749 $ 3,980,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 36,558 $ 113,496
Accrued liabilities 115,379 80,871
Current portion of long-term debt 107,143 133,381
Other 858,092 805,166
----------- -----------
Total current liabilities 1,117,172 1,132,914
LONG-TERM DEBT, net of current portion 54,595 35,953
----------- -----------
Total liabilities 1,171,767 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 326,261 193,628
----------- -----------
Total stockholders' equity 3,137,982 2,811,721
----------- -----------
Total liabilities and stockholders' equity $ 4,309,749 $ 3,980,588
=========== ===========
4
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
June 30, June 30,
1997 1996
---- ----
REVENUE $ 869,107 $ 448,859
COST OF GOODS SOLD 437,031 240,355
--------- ---------
Gross profit 432,076 208,504
COST AND EXPENSES:
Selling, general and administrative 183,828 142,743
Depreciation and amortization 5,346 2,825
--------- ---------
Income from operations 242,902 62,936
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 0 222
Interest expense (26,463) 0
--------- ---------
(26,463) 222
--------- ---------
INCOME BEFORE INCOME TAXES 216,439 63,158
BENEFIT (PROVISION) FOR INCOME TAXES 0 0
--------- ---------
Net income $ 216,439 $ 63,158
========= =========
5
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
June 30, June 30,
1997 1996
---- ----
REVENUE $ 1,519,941 $ 899,367
COST OF GOODS SOLD 756,829 511,147
----------- ---------
Gross profit 763,112 388,220
COST AND EXPENSES:
Selling, general and administrative 373,233 269,052
Depreciation and amortization 10,692 5,649
----------- ---------
Income from operations 379,187 113,519
----------- ---------
OTHER INCOME (EXPENSE):
Interest income 0 135
Interest expense (52,926) 0
----------- ---------
(52,926) 135
----------- ---------
INCOME BEFORE INCOME TAXES 326,261 113,654
BENEFIT (PROVISION) FOR INCOME TAXES 0 0
----------- ---------
Net income $ 326,261 $ 113,654
=========== =========
6
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
June 30, June 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 326,261 $ 113,654
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 111,892 96,000
Changes in certain assets and liabilities:
(Increase) in accounts receivable (117,032) (6,878)
(Increase) decrease in inventories 30,638 (101,623)
Decrease in prepaid expenses and other 65,680 0
(Increase) in other receivables (94,745) (52,717)
Increase (decrease) in accounts payable (83,388) 41,609
Increase in accrued liabilities 40,958 19,189
--------- ---------
Net cash provided by operating activities 280,264 109,234
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment, net (285,017) (109,147)
--------- ---------
Net cash used in investing activities (285,017) (109,147)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt 71,568 107,163
Payment on short-term notes payable (26,238) (5,499)
Issuance of common stock -- 10,000
--------- ---------
Net cash provided by financing activities 45,330 111,664
--------- ---------
NET INCREASE IN CASH 40,577 111,751
CASH, beginning of year 43,756 23,569
--------- ---------
CASH, end of year $ 84,333 $ 135,320
========= =========
7
<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.
2) INVENTORY
Inventory for the company is stated at cost. All of the costs
associated with the production of tile in the Mexican plant have been factored
into the value of the cost of the goods sold and the ending inventory. Cost of
goods sold also included freight from Mexico to the United States. Inventory as
of June 30, 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 June 30, 1997 consist of finished goods, work in progress and raw
materials amounting to $374,750, $17,441 and $167,506, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Sales for the second quarter ending June 30, 1997 have increased 94%
over the same period in 1996. Pre-tax earnings for the same period increased by
243%. This increase in pre-tax earnings of 243% is a graphic example of the
economies of scale, which have been reported in the Company's 10-K. Increases in
production volume, along with continuing market penetration, have given the
Company additional product to sell and this increased production volume has
reduced the cost of production as reported. This has allowed the Company to post
record earnings reflecting a 243% increase in profits. Market response on all
the company's products has continued to improve. The need for additional
production volume is always present. The natural stone market is measured in
billions of dollars annually and the Company will continue to expand its small
share.
The Company's new plant, dba Sociedad Piedra Sierra S.A. de C.V., is
operational and nearly complete. All machinery for Phase I has been received.
Installation of the final machine, a 1600mm block cutter from Italy, will be
complete by mid-August and immediately go on line. With this complete, the
Company will fully realize the installed capacity of the Phase I expansion,
producing the 70% plus increase that was projected. Construction activities have
caused some production delays and have slowed third quarter production volume.
With this construction complete, the Company will focus full attention on
operations (production, marketing, and sales) which should produce the projected
increases. The percentage of increase will level off as
8
<PAGE>
Phase I comes to full production. By year end the full effect is expected to
have been realized, of course adjusting for the seasonal market variables. At
that time the Company will need to build additional plant capacity to continue
substantial growth. Sociedad Piedra Sierra S.A. de C.V. was funded almost
entirely by earnings. Future growth will be funded by earnings, debt and equity
financing.
RESULTS OF OPERATIONS
The activities of the Company during the second quarter were focused on
improving both quality and quantity of production at the Mexican facilities,
improving training and work environment for all employees, penetration of the
local Arizona market, 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 second quarter due to
emphasis on improvement in training of management and employees, better
utilization of space and equipment, continuous improvement in the manufacturing
process, as well as quarry development and exploration. The showroom and
warehouse operation in Tempe, Arizona, has contributed toward greater
penetration of the Arizona market, which allowed an increase in the margin of
profit.
Management continued its commitment in the second quarter to developing
effective ways of fostering continuous improvement of quality. The training
program based on Control Systems Theory was continued. This approach was
developed by Dr. William Glasser and is consistent with the work of W. Edwards
Deming. As adopted by World Wide Stone, Control Theory Management involves
active interest by management in the needs of the workers, a participatory
environment, empowerment for decision-making, and emphasis on personal
responsibility. This approach is thought to be appropriate in multi-cultural
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
9
<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
10
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 SIX MONTHS ENDED JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 84,833
<SECURITIES> 0
<RECEIVABLES> 144,593
<ALLOWANCES> 0
<INVENTORY> 559,697
<CURRENT-ASSETS> 791,518
<PP&E> 4,160,347
<DEPRECIATION> 853,978
<TOTAL-ASSETS> 4,309,749
<CURRENT-LIABILITIES> 1,117,172
<BONDS> 54,595
0
0
<COMMON> 35,426
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<TOTAL-LIABILITY-AND-EQUITY> 4,309,749
<SALES> 1,519,941
<TOTAL-REVENUES> 1,519,941
<CGS> 756,829
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